MASTER 

NEGATIVE 
NO.  95-82389- 1 8 


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Author: 


Black  diamond 


Title: 


The  Black  diamond's 
primer  of  cost  accounting 

Place: 

[Chicago] 

Date: 

[19- 


-  jr  -■-'=■■  ^    "T"  '.rr 


MASTER   NEGATIVE   « 


COLUMBIA  UNIVERSITY  LIBRARIES 
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The  Black  diamond. 

The  lilack  diamond's  primer  of  coat  accounting: 
a  system  adapted  for  the  use  of  retail  coal 
merchants.     ^Chicago,  igi-ti 

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CHOOL  OF  BUSINESS 


3 


THE  BLACK  DIAMOND'S  PRIMER 
OF  COST  ACCOUNTING 


|! 


A  System  Adapted  for  the 
Use  of  Retail  Coal  Merchants 


N 


Reprinted  from  THE  BLACK  DIAMOND 
For  25  Years  the  Coal  Trade's  Leading  Journal 


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THE  BLACK  DIAMOND'S  PRIMER 


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Introductory. 


There  is  a  vast  difference  between  mere 
bookkeeping  and  accounting.  The  clerk  who 
stows  away  business  information  in  books  is 
a  bookkeeper.  The  man  who  draws  off  that 
information  and  uses  it  to  reform  the  business 
is  an  accountant. 

The  accountant  is  not  merely  a  bookkeeper. 
"He  may  be  a  specialist  in  accounts.  He  may 
be  the  owner  or  manager  of  the  business.  In 
fact,  any  man  who  uses  information  taken 
from  the  books  to  suggest  how  the  business 
practice  can  be  improved  is  an  accountant. 
His  work  consists  of  gathering  from  the  books 
the  information  which  tells  whether  it  is  cost- 
ing too  much  to  deliver  coal,  to  store  coal, 
or  to  buy  and  sel^  a  certain  grade  or  size  of 
coal.  His  work  is  to  gather  from  the  books 
whether  too  much  of  the  yard  trade  is  de- 
voted to  slow-moving  coal  or  whether  not 
enough  space  and  attention  are  given  to  fast- 
moving  coals.  All  of  this  information  is  in 
every  set  of  books.  It  is  the  accountant  who 
drags  it  out  and  uses  it. 

Accounting  concerns  itself  with  getting  in- 
formation out  of  the  books.  However,  in- 
formation, to  come  out  of  the  books  readily, 
must  be  put  into  the  books  in  a  certain  or- 
derly fashion.  The  accountant  makes  things 
easy  for  himself  by  seeing  that  the  business 
information  gets  into  the  books  properly. 

This  volume  is  on  retail  accounting — not  on 
bookkeeping.  It  indicates  how  business  in- 
formation should  be  stowed  away  only  in  that 
way,  telling  how  that  information  should  re- 
turn to  the  manager's  desk  to  make  a  vital 
suggestion  about  economy,  expansion,  or  a 
shift  in  stocks. 

Also  it  is  written  for  the  small  retailer.  It 
is  written  for  the  yard  manager  and  the  yard 
owner  who  must  be  his  own  accountant.  It 
is  designed  to  tell  him  how  to  have  the  book- 
keepers store  away  the  information  and  then 
how  to  have  that  information  summarized  and 
tabulated  to  yield  instantly  all  he  needs  to 
know  about  the  business. 

The  big  point  of  this  volume  is  that  it  ad- 
vises every  retail  dealer  to  keep  an  account 
with  each  bin.  Only  by  keeping  an  account 
w^ith  each  bin  or  with  each  size  as  well  as 
grade  of  coal  can  he  know  which  are  slow- 
moving  or  fast-moving  coals.  Only  by  ac- 
counting with  each  bin  can  he  tell  what  the 
degradation  or  loss  is.  Indeed,  only  by  keep- 
ing an  individual  account  with  each  bin  can  he 
tell  all  he  must  know  about  each  size  and 
grade  of  coal. 


T)  3^Ci  .  % 


This  purposeful  little  volume  is  made  as 
simple;  properly  it  is  called  a  primer  study  of 
retail  coal  yard  accounting. 

The  close  competition  of  the  day  makes  it 
imperative  that  the  coal  merchant  locate  defi- 
nitely the  gains  and  losses,  not  on  a  dollar 
basis  but  on  a  penny  basis.  The  demand  is  for 
efficiency,  but  efficiency  is  impossible  without 
accurate  accounting.  No  man  can  cut  cost  or 
speed  up  action  unless  he  knows  where  costs 
are  too  high  and  where  action  is  slow.  Such 
action  presupposes  a  thorough  knowledge  of 
all  the  items  of  income  and  outgo. 

This  information  to  be  of  any  service  cannot 
be  scattered  purposelessly  through  the  books. 
It  must  be  recorded  systematically  and  then 
centralized  in  a  statement  that  will  give  the 
yard  manager  a  quick  and  yet  comprehensive 
survey  of  all  essential  details.  To  this  end, 
experts  have  evolved  what  has  come  to  be 
known  as  cost  accounting.  This  is  a  branch 
line  of  inquiry.  It  does  not  confuse  by  ming- 
ling this  one  big  item  with  the  rest  of  the  ac- 
counts. It  asks  and  answers  the  vital  ques- 
tion: What  does  it  cost  to  handle  coal  per  ton? 

It  is  not  practicable  nor  economical  for 
the  coal  dealer  to  hire  an  expert  to  draw  off 
this  information.  It  is  practicable,  however, 
for  him  to  install  a  simple  system  of  reports 
which  will  give  him  essential  details  of  cost. 
These  details  compared  with  the  same  items 
for  previous  months  will  show  the  fluctua- 
tions. Thus,  if  the  cost  of  handling  per  ton 
is  too  great  to  allow  a  profit,  the  merchant 
must  raise  the  selling  price  or  cut  the  cost. 
However,  if  the  cost  of  handling  one  grade 
or  size  is  small  and  shows  a  profit,  while  an- 
other cost  is  high  and  shows  a  loss,  the  dealer 
should  push  one  coal  and  let  the  other  die. 

The  expense  of  arranging  a  ledger  to  make 
it  easy  to  draw  off  a  cost  statement  is  small. 
The  few  additional  forms  necessary  are  in- 
expensive. However,  since  the  result  of  these 
alterations  may  mean  the  continued  solvency 
of  the  company  or  the  beginning  of  a  profit- 
able career,  a  few  pennies  spent  in  blank  paper 
should  not  stand  in  the  way. 

In  this  little  volume  an  attempt  is  made  to 
show  how  such  a  system  may  be  installed. 
The  expenses  are  posted  in  the  ledger  in  such 
a  way  that  comparisons  readily  may  be  insti- 
tuted. To  do  this,  a  space  is  provided  for  each 
item,  and  each  is  put  in  its  proper  place  in  the 
ledger.  Then  this  volume  shows  how  the 
comparisons  should  be  made  and  indicates  the 
sources  of  the  information  for  these  compari- 
sons. The  final  statement  drawn  from  these 
sources  will  give  the  cost  o^  handling  each 
ton  of  each  grade  of  coal. 


OF  RETAIL  COST  ACCOUNTING.  *  3 

Chapter  One 

All  Expense  Must  Be  Divided  Into  "GeneraV'  or  "Operating;'  the  Charge  Being  Indi- 
cated by  Whether  the  Work  Is  for  All  Departments  or  for  Only  One. 


With  the  "cost  of  merchandise"  beyond  his 
control  and  with  the  selling  price  fixed  by  his 
competitor,  the  retailer  is  in  a  position  where  the 
"cost  of  handling"  coal  is  the  one  factor  which 
decides  in  favor  of  success  or  failure.  That  is 
"cost  of  merchandise"  subtracted  from  "selling 
price"  is  not  "profit."  On  the  contrary,  "cost  of 
merchandise"  plus  "cost  of  handling"  subtracted 
from  "selling  price"  is  "profit." 

To  many  retailers  the  variations  of  the  items 
included  in  "cost  of  handling"  seem  endless.     So 
soon  as  a  coal  merchant  has  established  a  system 
that   is   apparently   satisfactory  and  thinks   that 
he  has  reduced  the  cost  to  a  minimum,  some  item 
proves  to  have  been  omitted  from  his  calculation ; 
this  alters  the  result  so  as  to  show  a  loss  where 
a  profit  seemed  sure.    The  fault  here  lies  in  the 
fact  he  has  no  statistics  which  will  permit  him  to 
verify  any  items  included  in  his  statements.    For 
this  reason,  comparisons  for  the  purpose  of  regu- 
lation are,  of  course,  impossible.    The  dealer  is 
thus  left  in  the  unenviable  position  of  never  really 
knowing  whether  his  actual  operations  are  yield- 
ing a  profit  or  a  loss;  if  either  is  incurred,  he 
has  no  information  which  will  direct  him  to  the 
proper  channel  through  which  economy  will  flow. 
Every  coal  merchant  keeps  books  of  a  sort, 
very  few  merchants  analyze  the  expense  items, 
because  the  books  are  not  so  kept  as  to  make 
analysis  easy.     In   fact,  it  is  the  prevailing  cus- 
tom to*  post  all  expense  items  under  the  head  of 
"general  expense"  and  let  it  go  at  that;  no  at- 
tempt is  made  to  separate  the  various  expenses 
into   either   grand   divisions   or   detailed   depart- 
ments to  see  if  they  are  running  either  above  or 
below   "normal"   or   average   for   the   particular 
work  they  cover.     In  other  words,  the  merchant 
will  keep  a  set  of  books  but  make  no  attempt 
to  utilize  the  information  they  contain  in  protect- 
ing himself   from  preventable  inroads  upon  his 
profits  and  thus  upon  his  capital. 

There  is  no  known  standard  system  for  keep- 
ing coal  accounts.  The  hit  and  miss  systems 
now  employed  vary  from  keeping  books  on  the 
stubs  of  the  check  book  to  elaborate  and  costly 
"systems"  requiring  the  services  of  manv  clerks. 
As  a  result,  the  statements  drawn  from  the  books 
of  most  retail  coal  houses  are  far  from  complete. 
They  are  so  at  odds  with  each  other  as  to  suggest 
that  most  all  are  wrong.  Certainly  they  may  not 
be  used  as  a  safe  basis  for  estimating  or  record- 
ing the  "cost  of  handling."  This  variability  in 
"cost  of  handling"  finds  natural  expression  in 
variability  of  selling  price.  In  that  one  thing 
alone — ignorance  of  cost  of  handling — lies  the 
real  secret  of  trade  demoralization. 

This  condition  of  affairs  obtains  not  because 
the  average  dealer  does  not  desire  the  correct 
information  which  is  necessary  to  a  true  record. 
On  the  contrary,  he  is  only  too  willing  to  get  at 
the  facts  and  does  pay  heavily— sometimes 
far  too  heavily— for  even  the  dangerously  inac- 
curate record  that  is  given  to  him. 
The  purpose  of  this  volume  is  to  outline  as 


briefly  as  possible  an  economical  and  inex- 
pensive system  by  which  it  will  be  possible 
to  determine  "cost  of  handling." 

The  executive  officer  in  any  campaign  should 
be  thoroughly  familiar  with  the  organization  he 
commands,  even  to  the  smallest  detail.  This 
knowledge  is  essential,  if  he  is  to  proceed  intel- 
ligently to  strengthen  any  weak  spots  in  his 
force  or  if  he  is  to  guard  against  a  repetition  of 
any  heavy  loss.  The  executive  also  must  be 
familiar  with  the  enemy's  forces  or— to  put  it  in 
another  way— with  the  obstacles  he  must  over- 
come if  he  is  to  win  success.  If  the  coal  com- 
pany executive  is  in  a  campaign  to  reduce  "cost 
of  handling,"  he  must  be  familiar  with  all  "items" 
that  create  cost  as  well  as  with  the  organization 
or  the  part  of  the  organization  that  creates  them. 
In  other  words,  the  merchant  must  be  familiar 
with  all  the  items  that  go  to  make  up  the  entire 
expense  of  operating  the  coal  yard.  To  do  that, 
he  must  have  a  place  where  each  cost  is 
charged. 

Even  a  little  study  of  retail  accounting  will 
prove  that  all  expenses  may  be  divided  into  two 
broad  classes— "general  expenses"  or  overhead 
expenses  and  "operating  expenses"  or  direct  ex- 
penses. That  is,  all  expenses  are  divisible  broad- 
ly into  two  groups.  They  go  into  the  cost  of  buy- 
ing, selling,  handling  and  administration  or  they 
are  confined  to  one  detail  to  which  only  they 
belong.  There  are  direct  and  indirect  expenses, 
the  character  of  the  outlay  determining  which  is 
which.  For  convenience,  we  style  these  major 
divisions  as  "Group  A"  and  "Group  B."  In 
"Group  A"  or  "general  expenses,"  which  is  "over- 
head,' we  include  the  following  expenses,  which 
cover,  broadly,  all  departments: 

1.  Officials. 

2.  Office  salaries. 

3.  Salesmen  and  commission.  ' 

4.  Discount  and  interest.  j? 

5.  Rent. 

6.  Lighting. 

7.  Telephone. 

8.  Advertising. 

9.  Insurance.  ' 

10.  Taxes. 

11.  Depreciation.  .    ' 

12.  Postage. 

13.  Stationery. 

14.  Incidentals. 

In  "Group  B"  or  "operating  expense"  we  in- 
clude those  things  which  are  directly  chargeable 
against  the  coal,  such  as: 

15.  Yard  labor. 

16.  Unloading  expense. 

17.  Teaming  expense. 

18.  Pocket  labor. 

19.  Pocket  supplies. 

20.  Demurrage. 

21.  Shortage. 

The  first  group  headed  "general  expenses"  in- 
cludes   only   those   expenses   which    are   usually 


I' 


THE  BLACK  DIAMOND'S  PRIMER 


OF  RETAIL  COST  ACCOUNTING. 


termed  "overhead."  This  means  that  all  branches 
of  operation  must  bear  their  pro  rata  of  this 
expense  as  all  the  costs  incurred  are  for  the 
benefit  of  the  yard  or  plant  as  a  whole.  The  sec- 
ond group  or  "operating  expenses"  includes  only 
those  costs  that  directly  affect  the  particular  com- 
modity or  piece  of  work  and  which  are  not  in- 
curred until  that  commodity  is  handled  and  the 
work  done. 

How  much  does  it  cost? 

No  question  is  so  vital  to  the  merchant  in  any 
line  as  that  single  five-word  combination.  Upon 
its  correct  answer  depends  the  mechant*s  business 
life.  Until  it  is  satisfactorily  answered,  no  man 
may  know  whether  he  is  gaining  or  losing 
ground;  certainly,  he  cannot  tell  whether  his  ef- 
forts are  rewarded  corresponding  with  their 
merit 

The  elements  making  up  the  cost  of  coal  to 
the  coal  merchant  do  not  consist  only  of  the 
amount  he  pays  for  the  coal  at  the  mines  and  the 
freight  charges.  These  are  items  of  cost  to  be 
sure,  but  they  are  arbitraries  and  do  not  enter 
into  his  alterable  calculations;  he  is  powerless  to 
reduce  them  to  any  appreciable  extent  by  any 
economies  which  come  under  administration. 
That  is,  before  coal  is  entered  on  the  merchant's 
books  he  knows  exactly  how  much  his  merchan- 
dise account  must  be  debited.  All  alteration  in 
cost  must  be  effected  after  this  entry  is  made. 
Therefore,  the  retail  coal  merchant  realizes  that 
the  determining  factor  in  profits  is  not  so  much 
his  "cost  of  merchandise"  as  his  "cost  of 
handling."  The  first  is  an  arbitrary  fixed  for  all 
dealers;  the  second  is  a  changeable  factor  under 
the  control,  more  or  less,  of  each  dealer. 

The  price  for  which  the  coal  is  sold — as  deter- 
mined by  modern  merchandising  methods — ^is 
more  or  less  fixed  by  "competition."  Assuming 
it  to  be  impossible  to  get  a  common  understand- 
ing as  to  the  form  which  competition  shall  take, 
the  one  avenue  to  profit  is  through  the  reduction 
of  the  cost  of  moving  the  coal  to  the  consumer. 
Indeed,  this  reduction  of  cost  determines  both  the 
existence  of  any  profit  at  all  or  the  probable 
increase  of  that  profit. 

The  first  item  always  to  be  considered  in  the 
analysis  of  any  cost  account  is  the  compensa- 
tion allowed  the  various  persons  working  for 
the  firm  or  corporation.  This  includes  every 
salary,  from  the  highest  salaried  executive  to 
the  lowest  waged  laborer;  the  item  of  salaries 
and  wages  is  usually  the  heaviest  expense  in 
any  concern. 

Webster  defines  salary  as  "The  recompense  or 
consideration  paid,  or  stipulated  to  be  paid,  to  a 
person  at  regular  intervals  for  services.  Fixed 
regular  wages  as  by  the  year,  quarter  or 
month.  Stipend.  Hire."  A  footnote  to  the 
definition  states  that  "recompense  for  services 
paid  at,  or  reckoned  by  short  intervals,  as  a  day, 
or  week,  is  usually  called  wages."  The  same  au- 
thority defines  wages  as  "That  for  which  one 
labors.  Meed.  Reward.  Stipulated  payment  for 
service  performed.  Hire.  Pay.  Compensation." 
From  this  we  see  that  salary  and  wages  are 
much  the  same,  the  terms,  by  usage,  differing  in 
degree  and  not  in  kind.  For  the  purpose  of  this 
volume,  we  will  consider  the  term  salary  to  in- 
clude the  compensation  paid  to  employes  whose 
duties  are  connected  zvith  the  general  or  overhead 
expenses  included  in  "Group  A."    Wages  we  will 


consider  as  indicating  the  payments  made  to 
those  whose  work  is  a  direct  charge  to  the  cost 
of  handling  any  one  thing,  and  whose  duties  arc 
in  connection  with  "Group  B"  or  "direct"  or 
"operating  expenses." 

This  division  of  the  total  expense  into  "gen- 
eral" or  overhead  and  "direct"  or  operating  ex- 
pense is  one  of  the  most  vital  distinctions  which 
any  retail  coal  merchant  can  make.  It  is  the  one 
distinction  he  must  make  if  he  wants  to  have  his 
accounts  accurate  and  usable.  A  simple  illustra- 
tion or  two  will  make  the  advisability  of  this 
division  apparent  to  any  one. 

The  general  manager  of  the  retail  yard — who 
may  also  be  the  owner  of  it — is  working  one  in- 
stant upon  office  detail,  the  next  instant  upon 
unloading,  and  the  next  instant  upon  delivery.  In 
the  course  of  time,  he  touches  every  detail.  It  is 
presumed  that  whatever  he  is  doing,  he  is  spend- 
ing his  time  to  the  best  advantage  of  the  busi- 
ness as  a  whole,  yet  the  time  which  he  devotes 
to  each  department  must  in  some  way  be 
charged  against  that  department.  When  a  de- 
tailed charge  is  impossible,  a  lump  charge  must 
be  made.  Thus  it  is  reasonable  to  charge  his 
time  and  hence  his  salary  broadly  over  the 
whole  operation.  That  is  where  it  should  be. 
With  the  charge  distributed  broadly  in  this 
way,  the  general  manager  may  feel  at  liberty 
to  devote  his  time  or  any  part  of  it  to  anything 
which  seems  to  demand  his  personal  attention. 

On  the  other  extreme  of  the  pay  roll  is  the 
yard  laborer.  He  has  no  value  to  any  department 
except  in  the  manual  labor  which  he  performs  for 
that  department.  Today  he  may  be  employed  un- 
loading coal.  His  work,  there,  is  a  direct  charge 
-'not  only  against  coal  in  general  but  against  the 
particular  coal  which  he  unloaded.  Tomorrow  he 
may  be  employed  in,  we  will  say,  one  of  the  side 
lines  of  the  company;  he  may  be  loading  or  un- 
loading lumber.  The  work  he  does  is  for  a  par- 
ticular department,  which  receives  the  benefit  of 
that  work.  The  charge  should  be  made  where  the 
benefit  is  received.  Therefore,  the  charge  of  his 
wages  should  be  made  against  the  coal  depart- 
ment or  against  the  lumber  department,  or  against 
any  other  department  in  which  the  day  laborer  is 
employed. 

That  is,  the  compensation  of  the  general  man- 
ager is  a  charge  which  properly  is  spread  over 
the  whole  business  which  gets  the  benefit  of  his 
services.  The  wages  of  the  day  laborer  con- 
stitute a  charge  directed  against  one  particular 
department  only  of  the  business.  This  depart- 
ment gets  all  the  benefit  of  his  work;  this  de- 
partment should  be  charged  with  all  the  com- 
pensation paid  to  that  man. 

This,  in  a  general  way,  explains  the  reason  for 
the  division  of  all  the  expense  into  the  two  big 
headings,  "general  expense"  and  "operating  ex- 
pense." One  applies  to  the  operation  as  a  whole, 
the  other  applies  to  the  operation  in  detail. 

It  is  possible,  by  continued  analysis,  to  sepa- 
rate all  expenses  in  this  way  and  to  make  either 
a  direct  or  a  general  charge  out  of  each  item  of 
outlay.  This  must  be  done — and  must  be  done 
properly — if  the  books  are  to  make  a  proper 
showing.  In  no  other  way  will  it  be  possible  to 
have  such  a  record  on  the  books  as  will  show 
the  executive  of  the  company  where  the  leaks  in 
his  system  arc  and  where  costs  may  be  cut  by 
proper  attention  to  detail. 


Chapter  Two 

In  This  Chapter  Is  Told  Whv  the  Major  Items  Are  Charged  Under  General  Expense 

—Terms  Are  Defined  in  a  Simple  Fashion. 


In  the  first  article  on  retail  coal  accounting 
it  was  pointed  out  that  two  sets  of  charges  only 
can  influence  the  price  of  coal.  One  is  the 
"direct  expense"  or  that  incident  to  handling  a 
particular  grade  or  car  or  lot  of  coal.  The  other 
is  the  "general  expense"  which,  while  covering 
the  operation  of  the  whole  plant,  is  not  charge- 
able against  any  one  bin  and  hence  must  be  ap- 
portioned, each  ton  of  coal  handled  bearing  its 

share. 

Anyone  of  eVen  ordinary  intelligence  can  see 
that  if  a  given  amount  of  labor  is  performed  in 
any  handling  of  a  certain  lot  of  coal,  and  if  this 
labor  costs  a  given  sum  of  money,  that  coal  only 
should  have  charged  up  against  it  the  cost  of 
that  labor.  The  "direct  expense"  is  because  it 
is  obviously  far  easier  to  account  for  than  is 
the  "general  expense."  However,  the  cost  per 
ton  is  not  figured  properly,  unless  each  ton  of 
coal  handled  in  the  yard  during  a  given  period 
carries  its  proportion  of  the  overhead. 

Bookkeepers  and  business  men  do  not  disagree 
so  much  on  the  fact  that  all  items  of  expense 
should  be  charged  against  the  coal.  They  do 
disagree  as  to  where  the  various  charges  should 
be  made.  In  this  series  of  articles,  we  are  mak- 
ing an  arbitrary  division  of  the  expenses,  by 
items,  into  "general"  and  "direct"  expense.  The 
purpose  of  this  one  article  is  to  show  that  each 


one   of   the   items   listed   under  general   expense 
belongs  properly  there  and  nowhere  else. 

In  order  more  clearly  to  demonstrate  the  dis- 
tribution of  the  items,  included  in  amounts  paid 
for  salaries  and  wages,  there  is  shown  with  this  a 
chart  outlining  the  duties  of  the  persons  among 
whom  the  total  pay  roll  is  divided.  In  this  chart 
is  shown  a  probable  organization  of  a  corpora- 
tion engaged  in  a  retail  coal  business.  It  will  be 
seen  that  there  are  a  great  many  persons  engaged 
in  the  activities  of  this  hypothetical  company. 
The  list  includes  a  good  many  more  than  is 
usual  in  an  actual  business.  While  studying  this 
diagram  it  must  be  borne  in  mind  that  the  items 
composing  it  do  not  necessarily  denote  persons, 
but  rather  duties  or  positions.  One  person  may 
very  well  perform  one  or  more  of  the  functions 
indicated.  For  instance,  one  person  may  perform 
all  the  functions  of  the  first  four  items;  he  may 
be  president,  vice-president,  treasurer,  secretary 
and  general  manager  and  his  compensation  be 
charged  to  Account  One  "Officials."  Another  per- 
son may  perform  all  the  duties  enumerated  under 
"Office"  and  the  compensation  would  accordingly 
come  under  Account  2,  or  "Office  salaries."  On 
the  operating  side  of  the  chart  the  superintendent 
while  having  charge  of  all  the  activities  in  the 
yard  will  also  perform  the  duties  of  the  different 
foremen    indicated,   but   as   these   duties   are    so 


(1)  President 


(1)  Vice-President 


(1)  Treasurer 


(1)   Secretary 


(2)  General  Manager 


General 


Operating 


(2)  Office 


(3)  Sales 


(2)   Superintendent 


Chief  Clerk 

Cashier 

Clerks 

Stenographers 

Bookkeepers 

Office  Boys 

Janitor     . 


Sales  Manager 
Stenographers  and  Clerks 
Salesmen 


(15)  Yard  Foreman 


T 


(18)  Labor  (18)  Engineer 

(18)  Repair  Men      (18)  Oilers 

(18)  Firemen 


(15)  Yard  Labor  (17)  Stable  Boss 

(16)  Car  Unloaders      (17)  Hostlers 

(17)  Teamsters 

Each  class  of  employe  is  shown  and  also  the  number  of  the  account  to  which  the  compensa- 
tion is  charged  to  accord  with  the  numbers  shown  in  each  account  in  the  grand  division  of 
accounts  styled  groups  A  and  B  in  Chapter  One. 

This  chart  indicates  no  charges  other  than  those  for  Salaries  and   Wages. 


A  Chart  by  which  Salaries  and  Wages  Are  Located  Under  the  Proper  Account. 


THE  BLACK  DIAMOND'S  PRIMER 


OF  RETAIL  COST  ACCOUNTING. 


varied  in  character,  and  actually  cover  every- 
thing done  in  the  yard,  his  compensation  should 
be  charged  to  the  whole  work  and  is  therefore 
placed  in  Account  2.  All  other  items  on  the 
operating  side  are  direct  charges  to  the  partic- 
ular piece  of  work  performed  and  are  to  be 
charged  to  the  account  indicated  in  the  chart. 
It  will  be  noted  that,  in  the  yard  proper,  the 
yard  labor  and  the  labor  which  has  to  do  with 
the  teams,  are  separated,  although  both  of  the  sec- 
tions are  under  the  yard  foreman.  The  proper 
distribution  of  these  wages  will  be  shown  in  the 
discussion  of  the  labor  charges  under  Group  "B," 
which  will  appear  in  a  later  issue. 

The  first  requisite  in  the  installation  of  a  set 
of  cost  accounts  is  a  knowledge  of  the  items 
that  compose  each  account  and  the  proper  and 
logical  position  of  the  account  in  the  books. 
It  often  occurs  that  there  is  a  difference  of  opin- 
ion about  the  disposition  of  the  various  charges 
and  occasionally  a  charge  may  be  authorized  to 
one  account  that  should  properly  belong  in  an- 
other. Especially  is  this  true  where  the  several 
officials  are  empowered  to  expend  the  funds  of 
the  firm  for  any  purpose.  In  order  to  prevent 
this  indiscriminate  practice  and  to  settle  all  con- 
troversies, it  is  well  to  provide  a  classification 
in  which  the  accounts  and  the  items  that  com- 
pose them  are  defined.  All  expenditures  of 
whatever  nature  should  be  recorded  in  accord- 
ance with  the  classification  and  itemized  under 
the  definitions  contained  therein.  The  strictest 
adherence  to  this  rule  is  absolutely  necessary  to 
establish  a  true  and  systematic  account  of  the 
costs. 

For  the  purpose  of  classifying  and  defining  the 
various  charges  in  the  cost  account  items  as 
grouped  in  Chapter  One,  we  formulate  in  this 
chapter   a   definition   of  the  accounts. 

No.  I.  "Omcials."  The  subhead  "Officials"  is 
used  to  designate  the  first  account  under  Group 
"A.*'  To  this  account  is  to  be  charged  the  com- 
pensation and  expenses  paid  to  the  officials  of 
the  corporation  or  firm  who  are  also  presumed 
to  be  stockholders  such  as  the  president,  vice- 
president,  treasurer,  secretary,  general  manager, 
and  all  those  who  through  ownership  of  stock 
or  who  are  chosen  by  the  board  of  directors  to  di- 
rect the  policies  and  affairs  of  the  company.  It 
is  presumed  that  each  of  these  officials  is  entitled 
to  a  certain  stated  salary  and  this  account  must 
be  charged  only  with  the  salaries  and  expenses 
of  the  officials  enumerated. 

In  a  great  many  corporations  there  is  main- 
tained a  "Drawing  Account"  in  which  is  charged 
the  amount  drawn  by  officials  in  advance  for 
their  proportion  of  the  earnings  of  the  company 
to  date.  These  advances  in  effect  are  money 
borrowed  from  the  treasury  of  the  company  and 
should  be  regarded  as  such.  The  transaction  is 
entirely  between  the  treasury  and  the  official  in 
question,  the  cost  account  being  in  no  way  affect- 
ed by  these  advances.  The  amount  drawn  should 
be  carried  in  a  separate  general  ledger  account 
which  is  usually  styled  "Personal  Account.** 

This  account  "Officials"  also  carries  all  ex- 
penses incurred  by  officials  while  traveling  in 
the  interests  of  the  company.  Such  expenses  are 
classed  separately  from  the  amount  allowed  trav- 
eling salesman   as  traveling  expenses   which,   of 


course,  are  charged  to  the  selling  expense,  as 
will  be  shown  later.  The  Account  No.  1,  then, 
includes  only  the  salaries  of  the  officer  and  the 
expenses  incidental  to  the  performance  of  his 
office. 

No.  2.  Salaries — OMce.  This  subhead  is  in  a 
measure  self  explanatory.  To  this  account  should 
be  charged  the  salaries  of  the  executive  in  charge 
of  the  detail  activities  in  the  office  of  the  organi- 
zation and  his  assistants.  This  official,  the  gen- 
eral manager,  will  also  be  in  the  charge  of  the 
operating  ends  of  the  business  and,  as  shown  in 
the  chart,  both  the  recording  and  the  operating 
divisions  report  to  him  and  his  compensation  is 
therefore  a  charge  to  general  expense  because  his 
services  cover  the  whole  work. 

The  office  duties  he  will  delegate  to  the  office 
manager  who  in  turn  has  charge  of  and  is  respon- 
sible for  the  chief  clerk,  bookkeepers,  cashier, 
stenographers,  clerks,  office  boys  and  the  janitor. 
The  compensation  allowed  each  of  the  persons 
enumerated  is  charged  to  this  account  and  as 
their  services  also  cover  the  whole  work  it  is 
a  correct  "overhead"  charge. 

No.  3.  Salesmen  and  Commission.  This  ac- 
count is  one  of  the  general  expense  accounts  for 
a  department  which  entails  expenses  which  in 
total  form  a  very  heavy  percentage  of  the  cost 
of  handling.  To  it  is  charged  the  salaries  paid 
the  general  sales  agent,  his  secretary,  the  sales- 
men, their  traveling  and  incidental  expenses  and 
the  commissions  and  bonuses  paid  to  them.  It 
should  not  be  charged  with  advances  for  un- 
earned commissions  as  such  advances  are  not  a 
proper  charge  to  expenses  until  the  amount  has 
been  earned.  An  advance  is  in  the  nature  of 
a  loan  from  the  company  and  is  a  treasury  mat- 
ter that  should  be  carried  in  a  separate  account 
generally  called  "Advance  Account."  In  an  ad- 
vance on  commission  that  is  not  yet  due  this 
should  not  be  charged  until  the  commission  is 
payable,  in  which  case  it  automatically  takes  its 
place  in  the  items  of  expense.  All  advances 
should  be  carried  in  a  separate  "Advance  Ac- 
count" and  when  the  proper  time  comes  the  Ad- 
vance Account  should  be  credited  and  the  selling 
expense  charged.  The  percentage  ratio  in  the 
increase  and  decrease  of  this  Salesmen  and  Com- 
mission account  to  the  increase  and  decrease  in 
the  sales  will  determine  the  efficiency  of  the  sell- 
ing department  and  the  details  comprising  the 
account  should  determine  the  efficiency  of  the 
individual  salesman. 

It  will  be  seen  that  it  is  highly  important  that 
all  charges  to  this  account  should  contain  noth- 
ing but  amounts  actually  expended  as  it  is  from 
the  figures  in  this  account  that  the  executive 
is  guided  in  his  selling,  policy.  The  account  is 
a  direct  and  heavy  charge  on  the  executive  de- 
partment and  thus  on  the  overhead  expense  and 
great  care  should  be  exercised  in  maintaining  its 
integrity. 

It  will  be  noted  that  in  the  first  three  items  of 
the  classification  of  accounts  under  Group  A, 
we  have  concerned  ourselves  with  compensation 
paid  to  sundry  officials  and  employes  as  an 
overhead  expense.  The  subject  of  compensa- 
tion of  employes  whose  labor  is  a  direct 
charge  to  each  piece  of  work,  will  be  brought 
up  in   the  discussion  of  the  items  comprising 


Group  B.  For  the  present  we  will  discuss  the 
other  charges  affecting  the  overhead  expense, 
the  next  item  being  No.  4. 

No.  4.  "Discount  and  Interest."  This  account 
should  be  charged  with  all  discounts  allowed  for 
cash  or  any  other  reason.  Allowances  made  for 
prompt  payment,  for  purchases  in  large  quan- 
tities, or  if  the  purchaser  does  his  own  hauling 
and  delivering,  are  proper  charges  to  this  ac- 
count. It  should  carry  any  discrepancy  between 
a  quoted  price  and  the  actual  selling  price. 

It  often  happens  that  there  are  a  large  amount 
of  open  accounts  carried  as  "Accounts  Receiv- 
able," thus  tying  up  the  working  capital  of  the 
dealer.  Therefore,  it  is  incumbent  upon  him  to 
borrow  money  for  the  conduct  of  his  business. 
The  interest  on  these  loans  is  a  proper  charge 
to  this  account  as  it  is  an  expense  incurred  by 
the  dealer  in  extending  the  credit  to  his  cus- 
tomer. If  all  the  sales  of  the  dealer  were  on  a 
cash  basis,  the  expense  would  not  be  necessary 
as  then  he  would  not  have  to  hypothecate  his 
credits  to  the  bank  for  a  loan.  If,  on  the  other 
hand,  the  dealer  exacts  interest  on  long  or  over- 
due accounts,  this  account  should  receive  credit. 
Interest  on  money  borrowed  for  improvements, 
new  buildings  and  betterments  should  not  be 
charged  to  this  account  but  must  be  carried  in  a 
separate  general  ledger  account. 

No.  5.  Rent.  To  this  account  should  be 
charged  all  amounts  paid  for  the  use  of  premises, 
buildings  and  offices;  it  should  contain  the 
charges  for  rent  of  all  branch  offices.  In  case 
any  premises  or  offices  or  parts  of  offices  are 
sublet  for  any  purpose  the  account  should  receive 
credit.  If  the  corporation  or  firm  owns  its 
office  buildings  and  premises,  interest  may  be 
charged  on  the  appraised  value  of  the  property 
usually  at  the  rate  of  six  per  cent  per  annum  and 
the  amount  is  debited  to  rent.  This  is  done  to 
determine  the  earning  value  of  the  property.  It 
may  happen  that  property  now  advantageously 
used  as  a  coal  yard  may  rise  in  value  until  the 
ground  is  too  valuable  for  such  a  purpose,  in 
which  case  it  would  be  wise  to  dispose  of  it  and 
place  the  yard  in  a  cheaper  location.  In  this 
manner  the  earnings  of  the  real  property  will 
be  properly  indicated  in  the  records. 

No.  6.  Lighting.  To  this  account  should  be 
charged  all  expenditures  for  the  lights  used  in  il- 
luminating the  offices,  the  amount  being  usually 
determined  by  the  lighting  company's  bill.     The 


lights  for  the  yard  and  the  machine  plant,  i.  e., 
pocket  and  elevating  machinery,  should  be  charged 
directly  to  that  part  of  the  work  as  will  be  shown 
later.  Only  the  lights  for  the  offices  are  properly 
an  "overhead"  expense. 

No.  7.  Telephone.  To  this  account  should  be 
charged  amounts  paid  for  the  use  of  the  tele- 
phones in  the  various  activities  of  the  coal  yard 
offices  and  branch  offices.  As  telephone  service 
concerns  the  whole  work,  it  is  a  proper  charge 
to  general  or  "overhead"   expense. 

No.   8.    Advertising.    To   this   account   should 
be  charged  all  expenses  incurred  in  advertising 
the  business   whether  by  newspapers,   programs, 
circulars,  blotters,  letter  filers,  show  cards,  book- 
lets, novelties— such  as  pencils,  knives,  calendars, 
or   premiums   of   any   nature.     To   this   account 
should  be  charged  all  expenses  incurred  by  par- 
ticipation in  fairs,  the  cost  of  booths,  etc.,  and 
all  money  paid  as  the  firm's  proportion  of  any 
municipal  movement  for  the  betterment  and  ex- 
ploitation of  the  town  as  a  trade  center.     Some 
firms  also  charge  to  this  account  all  moneys  paid 
as   a  contribution  to  public  movements   for   the 
relief  of  distress  in  case  of  great  disasters,  such 
as  great  fires  or  floods  or  catastrophes  of  like 
nature  and  to  this  account  also  they  charge  any 
money  or  coal  they  give  for  charity.    These  last 
two  charges  are  based  on  the  advertising  value 
supposed  to  be  attached  to  a  reputation  for  benev- 
olence  but   as   a   strictly   advertising   accounting 
proposition  are  of  not  so  much  value  as  the  firm's 
reputation  for  integrity  or  efficiency  which  may 
be  properly  made  a  subject  for  advertising.    That 
is,  public  attention  may  be  drawn  thereto  through 
the  medium  of  the  press  or  otherwise.     No  one 
would  care  through  his  advertising  to  proclaim 
publicly  his  activities  as   a  philanthropist  or  as 
a  public  spirited  citizen.     Therefore  a  good,  safe 
rule  to  follow  is  to  charge  the  advertising  account 
with   only   the   amounts   expended   in   promoting 
the  publicity  of  the  business  of  the  merchants 
as  buyers  and  sellers  of  merchandise  and  not  as 
factors    in    welfare,    whether   public    or    private. 
Such  benefices  should  have  a   separate  account. 
So   far,   these   definitions  have  treated  of  ac- 
counts  which   accr^ie   from   month  to   month  or 
those    recorded    as    the    expenses    are    incurred. 
They  have  no  fixed  status,  but  fluctuate  as  cir- 
cumstances   dictate.      One    period    they    may    be 
normal;    another   they   may  be   abnormally   low, 
and  in  still  another  excessively  high. 


THE   BLACK  DIAMOND'S  PRIMER 


OF  RETAIL  COST  ACCOUNTING. 


Chapter  Three 

Depreciation  Account  Is  Studied  in  Detail  and  Reasons  Are  Given  Why  the  Charges 

Should  Be  Made  in  a  Given  Manner. 


In  studying  retail  coal  accounting,  no  question 
is  of  more  importance  than:  What  is  deprecia- 
tion and  how  shall  it  be  charged  off? 

Some  retailers  do  not  make  any  charge  to  de- 
preciation at  all.  Others  make  such  a  charge  and 
then  eat  into  it  by  making  the  depreciation  ac- 
count pay  for  the  repairs.  Others  set  aside  a  cer- 
tain sum  for  depreciation  but  use  the  wrong 
basis.    They  say: 

"We  make  this  charge  once  a  year  only.  There 
is  no  need  to  revise  the  figures  carefully.  Let 
the  basis  be  the  same  as  last  year." 

Bookkeeping  is  a  matter  of  figures.  Figures 
are  scientific.  No  guesses  about  figures  will  do, 
because  guesses  are  not  scientific.  To  use  the 
depreciation  account  properly  is  to  take  an  inven- 
tory of  the  value  of  a  plant  as  carefully  as  one 
would  of  stock.  The  appraised  value  this  year 
subtracted  from  the  appraised  value  from  last 
year,  is  the  total  amount  of  depreciation  to  be 
charged  off.  This,  expressed  in  cents  per  ton 
handled,  gives  the  amount  which  must  be  charged 
when  figuring  the  total  cost  per  ton  of  coal 
moved.  This  chapter  deals  mainly  with  deprecia- 
tion. Before  going  into  that  big  subject  it  is  nec- 
essar>- — if  the  chronology  is  to  be  observed — lo 
give  a  definition  to  a  couple  of  other  accounts. 
These  definitions  are  important  as  they  are  neces- 
sary to  accurate  and  scientific  bookkeeping. 

In  Chapter  Two,  we  discussed  various  accounts 
the  charges  to  which  vary  from  month  to 
month.  There  is  another  set  of  accounts  which 
may  be  termed  fixed,  that  is  the  amounts  are 
charged  in  a  lump  and  the  total  prorated  over  a 
year.  These  accounts  are  detailed  under  the 
sub-heads,  "Insurance,"  "Taxes"  and  "Depreci- 
ation." All  these  items  are  nearly  always  deter- 
mined in  advance  and  are  almost  always  paid  in 
advance.  It  would  not  make  a  true  cost  showing 
if  these  amounts  were  charged  in  a  lump  to  the 
month  or  period  in  which  they  were  paid,  but 
each  month  must  bear  its  proportion  of  the  ex- 
pense separately  as  will  be  shown  in  the  definitions 
to  follow. 

No.  9 — Insurance:  To  this  account  should  be 
charged  all  amounts  paid  for  insurance  as  they 
become  due  and  the  cost  of  the  insurance  for  any 
given  time  should  be  added  to  the  total  costs  in- 
curred during  that  time.  In  case  the  insurance 
premium  is  paid  in  advance,  an  account  should 
be  opened  with  "Insurance"  and  the  entire  pre- 
mium charged  thereto.  For  cost  purposes,  there 
should  be  an  account  entitled  "Expired  Insurance" 
to  which  should  be  charged  the  amount  of  the 
insurance  to  cover  the  period  involved.  The 
amount  charged  to  "Elxpired  Insurance"  should 
be  credited  to  the  account  "Insurance"  and  when 
the  policy  has  matured,  the  charge  to  "Insurance" 
will  be  automatically  wiped  out. 

For  instance,  if  the  amount  of  the  premium  on 
January  1  is  $120  for  a  year,  the  account  "In- 
surance" is  charged  with  $120  and  when  the  books 


are  closed  for  January  the  "Expired  Insurance" 
account  is  charged  ten  dollars  and  the  same 
amount  credited  to  "Insurance."  It  is  obvious 
that  at  the  end  of  the  year,  when  the  accounts 
for  the  month  of  December  are  closed,  the  credits 
and  debits  to  "Insurance"  will  balance  and  the 
costs  have  only  been  charged  each  month  with 
the  $10.00  expired  insurance  in  that  month.  If, 
.  however,  the  insurance  is  not  paid  in  advance,  the 
amount  should  be  estimated  and  one-twelfth 
charged  to  the  costs  each  month  and  all  adjust- 
ments made  when  the  actual  amount  is  ascer- 
tained. 

No.  10 — Taxes:  This  account  is  handled  in 
the  same  way  as  "Insurance."  To  this  account 
should  be  charged  all  amounts  assessed  against 
the  firm  or  corporation  for  taxes.  An  account 
should  be  opened  entitled  "Taxes"  which  should 
be  charged  with  the  amount  of  the  taxes  for  a 
year.  For  cost  purposes  there  should  be  an  ac- 
count entitled  "Accrued  Taxes"  which  is  to  be 
charged  with  the  amount  of  taxes  as  they  accrue, 
as  in  this  way  only  that  part  of  the  taxes  that 
affect  the  costs  for  the  month  will  be  shown. 
The  account  "Taxes"  is  credited  with  the  amount 
of  the  accrued  taxes  each  month  as  they  are 
charged  off  to  the  "Accrued  Taxes"  account. 
Taxes  are  paid  at  various  times  during  the  year 
and  until  they  are  paid  they  should  be  estimated 
and  all  adjustments  made  when  the  actual  amount 
is  ascertained. 

One  of  the  peculiar  things  alx)ut  capital  is  that 
the  minute  it  goes  to  work  it  must  make  some 
provision  to  protect  itself  against  the  many  influ- 
ences that  are  alert  for  its  destruction.  This 
protection  is  generally  some  form  of  insurance 
which  must  be  paid  for  out  of  the  earnings.  If 
capital  remains  idle,  this  insurance  must  be  paid 
out  of  itself.  One  way  to  put  capital  to  work  is 
to  invest  it  in  some  form  of  equipment  that  will 
take  raw  material  and  turn  it  into  a  finished 
product.  The  difference  between  the  value  of  the 
finished  product  and  the  value  of  the  raw  material 
plus  labor  cost,  determines  the  earnings  of  the 
capital  invested.  It  follows  that  the  value  of 
property  is  based  upon  its  earning  power. 

There  is  a  difference  between  property  and  the 
value  of  property.  This  was  illustrated  not  so 
very  long  ago  in  London,  England,  when  horse 
cabs  and  omnibuses  were  very  popular  and — 
because  they  were  employed  for  a  good  compen- 
sation— valuable.  Many  men  were  employed  in 
this  industry  and  a  great  deal  of  capital  was 
invested  in  horses,  harness,  cabs  and  omnibuses. 
With  the  advent  of  the  taxicab  system  horse- 
drawn  vehicles  became  obsolete  and  those  who 
had  engaged  in  this  form  of  city  transportation 
were  forced  to  seek  other  means  of  livelihood  or 
purchase  taxicabs. 

The  cabs,  omnibuses  and  other  paraphernalia 
were  relegated  to  the  junk  pile,  the  value  of  the 
property  had  depreciated  to  almost  nothing  »al- 
though  the  property  itself  was  still  there.    Public 


demand  for  better  and  quicker  service  had  de- 
creed the  destruction  and  rendered  obsolete  one 
form  of  transportation.  To  meet  this  demand, 
capital  had  to  be  invested  in  the  new  equipment 
The  earnings  of  the  capital  invested  in  the  auto 
cabs  was  probably  not  greater  than  that  invested 
in  the  horse  cabs,  yet  the  service  to  the  pubhc 
is  better  and  more  efficient,  so  the  man  with  the 
auto  cab  got  all  the  business;  he  captured  the 
market  for  transportation.  To  compete  with 
him,  the  others  had  to  furnish  equally  excellent 
service  and  the  horse  cab  was  doomed.  Its  value 
became  nothing  more  than  the  price  it  would 
bring  as  junk.  , 

This  is  only  one  of  many  mstances  showing 
how  values  may  be  attacked.     The  coal  retailer 
may  have  experienced  a  like  lowering  of  values  in 
his   plant.     His   neighbor   may   have  installed  a 
pocket  and   mechanical  unloaders  or  may  have 
adopted  some  newer  method  of  handling  coal  that 
would  decrease  the  cost  of  handling.     He  thus 
would  be  able  to  name  to  buyers  a  better  price 
on  his  coals.    The  better  selling  price  secures  the 
market.    The  new  appliances  place  competitors  at 
a  disadvantage.    This  reduces  the  earning  power 
or  value  of  their  properties.    To  the  many  safe- 
guards  required  by  capital,  must  be  added  the 
very  necessary  one  of  protecting  its  investment 
from  loss  of  value.    Hence  the  account  "Depre- 
ciation" is  provided.  ,      tj 
l^Q^  J  I— Depreciation.    To  this  account  should 
be  charged  all  of  the  estimated  loss  of  value  sus- 
tained bv  the  wear  on  the  buildings,  machineryi 
power  plant,  tools,  fixtures,  furniture  and  equip- 
ment used  in  the  business. 

To  offset  this  charge,  there  must  be  opened  an 
account  entitled  "Depreciation  Reserve  Account 
to  take  care  of  the  corresponding  credit.  The 
Depreciation  Reserve  Account  is  a  general  ledger 
account  that  in  no  way  affects  the  cost.  It  is 
mentioned  here  merely  in  order  to  explain  what 
disposition  is  made  of  the  amount  charged  to 
"Depreciation."  It  is  a  bookkeeping  safety  de- 
posit box,  and  nothing  more. 

The  most  obvious  way  of  arriving  at  the  depre- 
ciation of  value  would  be  to  ascertain,  by  com- 
petent authority,  the  value  of  the  fixed  assets 
(buildings,  tools,  machinery  and  other  equip- 
ment) at  the  end  of  the  company's  fiscal  year. 
This  sum  should  then  be  subtracted  from  the 
appraised  value  of  the  preceding  period.  The 
depreciation  is  accounted  for  on  the  books  by 
making  the  necessary  entries  in  the  correspond- 
ing accounts,  charging  Depreciation,  and  credit- 
ing Depreciation  Reserve. 

It  will  be  noted  that  this  requires  a  whole  or 
what  is  called  an  accounting  year  to  make  the 
proper  entries.  That  is,  no  man  can  know  what 
his  depreciation  charge  is  to  be  until  the  end  of 
the  year.  Because  of  the  length  of  time  required 
and  because  of  the  great  difficulty  in  ascertaining 
quickly  the  proper  and  correct  deduction  in  value, 
this  method  is  neither  practicable  nor  safe.  On 
that  account  some  other  and  quicker  method  must 
be  devised. 

The  proper  basis  upon  which  to  charge  depre- 
ciation is  and  has  been  the  subject  of  great 
diversity  of  opinion.  The  items  in  the  account 
are  and  have  been  ascertained  by  many  different 
methods.    The  only  thing  common  to  these  vary- 


ing opinions  and  methods  is  the  fact  that  the 
amounts  to  be  charged  to  depreciation  must  be 
governed  by  circumstances. 

There  is  in  fact  no  hard  and  fast  rule  to  apply. 
What  would  be  a  proper  charge,  under  certain 
conditions,  in  one  place,  would  be  all  wrong  in 
another  place.  The  charge  is  based  upon  a  con- 
tingency; upon  something  that  is  going  to  hap- 
pen ;  upon  the  certainty  that  a  piece  of  machinery, 
a  tool,  or  a  building  will  with  constant  use  or 
even  while  just  existing  eventually  wear  out.  If 
the  business  is  to  continue,  that  piece  of  machin- 
ery or  that  building  must  be  replaced.  The 
amounts  charged  to  this  account  are  in  reality  to 
provide  a  fund  for  this  necessary  replacement. 
These  are  considerations  incident  either  to  use 
or  to  mere  existence.  There  are  other  consider- 
ations which  grow  out  of  competition.  If  the 
equipment  passes  out  of  vogue,  it  naturally  loses 
value  faster.  That  means  that  depreciation  under 
such  conditions  must  be  faster. 

The  cost  of  the  buildings  and  equipment  of  all 
description  originally  is  met  by  subtractions  from 
the  capital  account.  The  depreciation  charge  is 
simply  a  reserve  established  to  protect  capital 
account  because  of  the  lowering  of  values  occa- 
sioned by  use  and  exposure  or  by  mere  existence 
or  by  changes  in  competitive  conditions. 

Owing  to  the  uncertainty  of  the  various  ele- 
ments on  which  this  charge  is  based,  the  total 
amount  to  be  charged  to  depreciation  is  usually 
estimated  on  the  probable  life  of  the  building  or 
equipment  of  whatever  kind.  This  estimate  is 
based  either  on  the  experience  gained  from  long 
continuance  in  business  or  upon  the  experience  of 
others  in  similar  lines  of  endeavor,  if  such  experi- 
ences are  available. 

Great  care  should  be  used  in  estimating  a  de- 
preciation charge.  A  man  may  estimate  the  life 
of  a  coal  bin  at  ten  years  and  provide  for  the 
depreciation  of  value  of  that  bin  at  the  rate  of 
ten  per  cent  per  annum.  At  the  end  of  six  years 
he  finds  that  his  bin  will  have  to  be  replaced.  In 
th^  event,  the  man  has  based  his  estimate  too  low. 
He  has,  thereby,  incurred  a  loss  of  value  for 
which  no  provision  has  been  made.  The  differ- 
ence between  his  estimate  of  ten  per  cent  per 
annum  and  his  actual  loss  of  value  of  sixteen 
and  two  thirds  per  cent  per  annum  is  an  amount 
equal  to  six  and  two  thirds  per  cent  per  annum 
of  the  capital  invested  in  the  bin.  This  will 
result  in  an  extraordinary  charge  upon  his  rev- 
enue, as  in  the-  replacement  of  the  bin  he  will 
have   to    provide    the    funds    from    his    current 

revenue. 

If,  however,  he  has  amply  provided  for  this 
loss  of  value  and  if  at  the  end  of  ten  years  the 
bin  is  still  serviceable  and  no  new  bin  is  neces- 
sary, the  capital  invested  has  all  been  recovered 
from  the  revenue  and,  theoretically,  all  the  earn- 
ings of  the  amount  invested  in  the  bin  wiU  there- 
after be  clear  gain. 

But,  the  fact  remains  that  at  some  time  the 
bin  will  wear  out  and  will  have  to  be  replaced. 
When  the  time  of  replacement  does  come,  no 
doubt  consideration  will  have  to  be  given  to 
new  and  improved  methods,  to  advanced  ideas 
in  construction,  to  better  and  to  more  durable 
materials.     On   these   accounts  the  cost   of   the 


10 


THE  BLACK  DIAMOND'S  PRIMER 


OF  RETAIL  COST  ACCOUNTING. 


11 


new  bin  will  greatly  exceed  the  original  cost  of 
the  old  bin.  What  the  dealer  wants  is  a  new 
bin  that  will  fit  as  well  into  the  conditions  at  the 
time  it  is  built  as  the  old  one  fitted  into  the 
conditions  at  the  time  it  was  built.  To  get  the 
new  bin  the  dealer  should  continue  to  provide, 
out  of  his  revenue  account,  a  replacement  re- 
serve. If  he  fails  to  do  that,  he  must  draw  upon 
his  capital,  which  is  a  thing  he  is  steadily  trying 
to  avoid. 

In  this  way,  the  dealer  may  avoid  the  neces- 
sity of  making  any  charge  to  his  capital  account 
for  the  new  structure.  If  for  any  reason,  the 
new  structure  is  not  built  he  has  provided  from 
his  revenue  a  reserve  which  returns  his  original 
capital  and  even  more.  By  making  a  proper 
charge  to  depreciation  he  can't  lose,  but  he  may 
gain. 

Because  of  the  difficulties  involved  in  basing 
a  correct  estimate,  many  firms  do  not  carry  this 
important  account  and  depreciation  of  value  is 
not  considered  when  they  figure  profit  and  loss. 
When  this  course  is  pursued  the  selling  price — if 
competition  is  keen — is  almost  sure  to  be  less 
than  it  should  be  by  just  the  amount  per  ton 
which  should  be  charged  to  depreciation.  In 
these  days  of  small  profits  or  close  margins  this 
item  not  infrequently  decides  against  profit  and 
in  favor  of  loss. 

Other  merchants  carry  this  account  on  their 
books  with  the  depreciation  figured  on  an  arbi- 
trary estimate.  That  is  the  life  of  the  plant  or 
equipment  is  estimated  without  regard  either  to 
the  probabilities  or  to  the  law  of  average.  Such 
an  estimate  is,  of  course,  liable  to  be  erroneous. 
However,  even  an  arbitrary  depreciation  charge 
is  far  better  than  giving  the  subject  no  con- 
sideration whatever. 

In  arriving  at  an  estimate  of  the  life  of  the 
property,  the  subject  should  be  viewed  from  every 
angle.  The  materials,  the  construction,  the  loca- 
tion, the  recklessness  common  to  men  handling 
other  people's  property  and  all  the  contingencies 
to  which  property  is  liable  must  be  considered. 
One's  own  experience  in  these  matters  is  .the 
best  basis  for  estimating;  the  next  best  is  the 
experience  of  others. 

The  percentages  of  depreciation  in  quite  gen- 
eral use  are:  Buildings,  three  per  cent;  ma- 
chinery, ten  per  cent;  power  plants,  seven  per 
cent;  tools  and  fixtures,  fifteen  per  cent;  office 
furniture,  ten  per  cent;  horses  and  wagons, 
twenty  per  cent;  automobile  trucks,  thirty- 
three  and  a  third  per  cent.  These  percentages 
must  not  be  taken  as  authoritative  because,  as 
stated  before,  all  these  percentages  may  vary 
according  to  circumstances. 

No  depreciation  should  be  figured  on  sites  or 
land  on  which  the  plant  is  located.  Neither  is 
any  account  taken  of  appreciation. 

In  every  line  of  business,  there  will  be  a  regu- 
lar demand  for  ordinary  repairs,  renewals,  re- 
placements and  the  like.  These  outlays  are  a 
part  of  the  ordinary  running  or  operating  ex- 
penses and  in  no  sense  are  a  charge  upon  depre- 
ciation reserve.  In  defining  the  depreciation 
charge  Henry  Parker  Willis,  an  accounting 
authority,  says : 

"Depreciation  is  the  larger  conception  of  gen- 


eral loss  of  value  rather  than  that  of  special  and 
minor  injury  due  to  use."  To  illustrate  this,  we 
will  suppose  we  have  a  coal  elevator  worth,  say, 
$5,000;  that  is  we  have  invested  $5,000  of  our 
capital  in  such  a  way  that  the  money  will  be 
put  at  work.  We  will  go  on  the  logical  assump- 
tion that  nothing  is  ever  better  than  when  it  is 
brand  new.  Hence  it  is  presumed  that  when  this 
elevator  is  turned  over  to  us  by  the  contractor 
it  is  in  shape  to  earn  adequate  returns  on  the 
amount  invested;  it  is  in  its  state  of  highest 
efficiency.  After  a  few  weeks  of  operation,  the 
conveyor  belt  breaks  and  repairs  to  the  extent 
of  fifty  dollars  are  necessitated.  The  fifty  dollar 
charge  does  not  represent  the  fact  that  the  value 
of  the  plant  has  depreciated  fifty  dollars,  but  it 
does  mean  that  it  will  require  that  much  money 
to  bring  the  plant  to  the  efficiency  required  for 
it  to  earn  as  much  on  the  investment  as  when 
it  was  new  and  in  complete  working  order. 

Unless  the  repair  is  made  the  elevator  can  not 
operate  and  the  repair  charge  is  an  operating 
expense  and  should  be  so  considered.  The  plant 
depreciates  in  value  whether  it  is  running  or 
remaining  idle.  This  loss  of  value  is  already 
provided  for  in  the  account  'Depreciation'  which 
is  a  fixed  account,  the  items  of  which  should  not 
be  augmented  or  decreased  unless  the  basis  for 
the  entire  account  is  augmented  or  decreased. 

No.  J^— Postage:  To  this  account  should  be 
charged  all  amounts  paid  for  postage.  A  great 
many  firms  handle  this  item  through  their  petty 
cash  accounts,  which  is  not  a  true  showing  of 
expenses.  It  should  be  shown  in  a  separate  ac- 
count the  same  as  any  other  permanent  expense. 

No.  I J — Stationery:  To  this  account  should 
be  charged  all  amounts  expended  for  stationery. 
This  includes  statements,  bill  heads,  invoices,  let- 
ter heads,  envelopes,  tags  and  the  various  ledgers, 
account  books,  scale  tickets  and  all  paper  used  for 
accounting,  carbon  sheets,  typewriter  ribbons, 
scratchers,  erasers,  pens  and  ink,  and  all  the  mis- 
cellaneous supplies  used  by  the  accounting  force 
in  the  keeping  of  the  records. 

No.  14 — Incidentals:  This  is  an  account  that 
is  subject  to  a  great  deal  of  abuse.  To  this 
account  should  be  charged  all  items  not  covered 
by  the  other  thirteen  accounts  in  "General  Ex- 
pense Group  A."  Items  which  do  not  occur  fre- 
quently enough  to  warrant  the  opening  of  a  spe- 
cial account  for  them  belong  in  this  account. 
Because  of  the  diversity  of  items  which  can  be 
included  under  this  head,  clerks  under  pressure 
of  affairs  will  include  in  this  account  items  which 
properly  belong  to  other  accounts.  This  fact 
frequently  results  in  the  account  "Incidentals" 
showing  a  total  entirely  unwarranted  and  some- 
times greater  than  any  other  item  of  expense 
except  salaries  and  wages.  There  is  no  excuse 
for  such  a  proceeding  other  than  a  lack  of 
knowledge  of  how  to  classify  accounts.  This 
condition  is  usually  the  result  of  downright  lazi- 
ness. If  any  one  item  of  incidental  expense 
occurs  often  enough,  such  as  for  instance  tele- 
graph expenses,  it  is  best  to  open  an  account 
with  that  expense.  The  account  "Incidentals"  is 
not  a  catch-all  but  is  legitimately  intended  only 
for  what  the  name  implies — incidental  expenses 
for  which  no  other  provision  has  been  made. 


Chapter  Four 

/]  Stock  Record  or  Inveutorv  Is  Necessary    to    Accurate    Bookkeeping— Coal    Which 
Represents  Money  Must  Be  Accounted  for  as  Accurately  as  Cash. 


Some  mathematician  said:  "Any  problem 
is  half  solved  the  instant  one  is  able  to  read 
it  correctly."  In  accounting  for  retail  costs, 
the  bookkeeping  is  half  done  the  instant 
one  learns  where  to  make  a  charge  or  a  credit 
and  why.  We  have  divided  all  expenses 
broadly  into  Group  A  or  general  expense  and 
group  B,  operating  expense.  But  what  is 
"operating  expense"?  The  answer  to  that 
question  will  make  all  bookkeeping  easy  and 
incidentally  will  make  cost  accounting  ac- 
curate. 

Operating  expense  is  charged  with  all 
amounts  expended  in  performing  a  certain 
piece  of  work  and  in  purchasing  and  applying 
the  supplies  necessary  for  that  work. 

That  is  the  operating  expense  of  a  retail  dealer 
does  not  include  the  cost  of  the  coal  itself; 
that  is  charged  to  another  and  separate  ac- 
count. This  expense  does  include  the  cost  of 
all  services  of  the  retail  coal  establishment 
in  supplying  the  consumer  with  that  coal.  It 
therefore  covers  all  cost  of  preparing,  clean- 
ing, storing,  handling  and  delivering  the 
product.  Those  things  which  we  have  in- 
cluded under  "Group  B"  involve  the  "direct" 
expenses,  which  must  be  added  to  the  price  of 
the  coal  in  order  to  determine  the  total  cost 
of  the  coal  to  the  retail  dealer.  Naturally, 
unless  these  expenses  are  added  to  the  price 
of  coal  delivered  at  the  yard,  the  statement  of 
cost  is  not  accurate. 

However,  the  operating  expense  is  a  big 
item  which  branches  into  many  departments. 
It  cannot  be  discussed  as  a  whole  with  any 
hope  of  clarity.  To  simplify  it,  we  will  dis- 
cuss one  department  at  a  time.  To  start  from 
the  very  beginning  we  will  in  this  chapter, 
discuss  the  stock  of  coal  on  hand  and  after 
outlining  the  items  of  cost,  we  will  formulate 
a  method  of  keeping  a  record  of  that  stock. 
It  is  obvious  that  no  man  can  conipute  the 
cost  of  anything  until  he  has  something.  The 
retail  merchant's  something  is  a  stock  of  coal. 
Before  he  can  figure  costs  he  must  have  a 
record  of  both  quantity  and  value.  This 
record  should  show  the  quantity,  the  kind,  the 
grade  and  the  price  of  the  coal  on  hand. 
From  this  record,  if  properly  kept,  it  should 
be  possible  to  determine  the  rate  of  movement 
of  the  coal  or  the  "Turn  Over,"  the  need  for 
purchasing  fresh  supplies  and  if  properly 
maintained  this  record  is  not  only  an  account- 
ant's starting  point,  but  a  perpetual  and  accurate 
book  inventory  of  the  yard's  merchandise. 

It  is  astounding  how  many  coal  merchants 
fail  to  keep  even  an  approach  to  a  stock 
record.  Their  knowledge  of  the  stock  on 
hand,  therefore,  is  nothing  more  than  pure 
guess  work.  For  this  reason,  not  a  single  bal- 
ance sheet  from  their  books  is  or  can  be  accurate!. 
They  have  begged  one  premise ;  they  must  beg  all 

later  premises.    They  start  wrong;  they  must 

end  wrong. 


Here  is  another  thing  to  consider.  It  is  im- 
possible to  "close"  any  set  of  books  without 
an  inventory.  The  books  must  be  closed  at 
some  time  or  there  is  no  basis  for  declaring 
dividends  or  taking  a  profit.  If  an  inventory 
is  necessary  there  are  but  two  ways  of  taking 
it.  One  is  to  have  an  engineer  to  take  meas- 
urements on  coal  piles.  The  other  is  to  keep 
a  perpetual  inventory.  The  time  and  labor 
saved  when  an  actual  inventory  is  taken  will 
pay  many  times  for  the  trouble  in  keeping  a 
perpetual  inventory,  which  is  reason  enough 
for  its  use.  The  plan  which  is  here  outlined  is 
a  perpetual  inventory  that  can  be  summarized 
daily  if  necessary.  It  will  often  prevent  the 
merchant  from  overbuying  and,  in  case  a 
quick  estimate  of  assets  is  desirable,  the  stock 
book  will  prove  of  inestimable  value. 

For  instance,  if  a  fire  should  occur  and  the 
plant  of  the  coal  merchant  be  destroyed  it 
would  be  essential  that  some  record  of  the 
stock  on  hand  be  shown  in  order  to  make 
a  proper  and  prompt  settlement  with  the  fire 
insurance  adjusters.  In  such  an  event,  the 
records  maintained  by  the  merchant  would 
be  the  prime  governing  factor  in  proving  the 
claim  for  losses  sustained.  Every  coal  mer- 
chant, when  asking  himself  the  question, 
"How  much  coal  have  I  on  hand?"  should  be 
able  to  tell  almost  to  the  ton  the  quantity  on 
hand  and  its  cost. 

While,  as  a  rule,  stock  records  are  rare— 
hence  most  books  are  perpetually  out  of  bal- 
ance— many  coal  merchants  have  spent  much 
time  and  thought  in  reducing  this  problem  to 
its  simplest  terms.  They  have  in  fact  solved 
the  problem  of  keeping  a  perpetual  inventory. 
With  them  when  the  business  for  the  day  is  over 
the  stock  record  is  checked  and  closed  with  as 
much  care  as  the  cash  book. 

In  any  business  so  conducted,  cash  and  coal 
are  interchangeable  commodities;  they  are 
merely  different  ways  of  expressing  the  same 
thing.  The  accounts  for  one  should  in  con- 
sequence receive  as  much  care  and  attention 
as  the  other.  That  is,  the  stock  cost  money 
itself  is,  figuratively  at  least,  hidden  in  the 
coal  pile.  It  is  as  important  to  account  for 
the  money  in  that  form  as  it  is  to  account 
for  cash  in  bank.  Also  any  additional  money 
put  into  the  stock  pile  must  be  accounted  for 
in  detail.  The  accounting  for  this  money  is 
impossible  unless  there  is  first  accounting  for 
stock  to  show  how  much  coal  one  has  on 
hand,  its  value,  the  amount  sold  to  date  and 
the  rate  of  movement  of  the  various  kinds  and 
grades.  Thus  the  coal  merchant  can  keep 
an  eye  on  the  demand  in  his  territory  and  is 
informed  of  the  peculiar  needs  of  his  cus- 
tomers. If  the  inventory  sheet  shows  the  coal 
received  and  the  coal  sold,  the  dealer  has  a 
thorough  grasp  of  the  physical  movement  of 
his  merchandise. 

In    cost    accounting,    the    information    con- 


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THE  BLACK  DIAMOND'S  PRIMER 


OF  RETAIL  COST  ACCOUNTING. 


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tained  in  this  stock  book  or  book  inventory  is  ab- 
solutely essential.  It  is  from  this  record  that 
the  figures  are  taken  which  serve  as  a  founda- 
tion for  the  structure  which  shows  the  final 
cost. 

The  stock  book  takes  almost  as  many  forms 
as  there  are  individuals  concerned  in  keeping 
it.  That  is,  nearly  every  merchant  who  keeps 
such  a  record  handles  it  in  his  own  way,  which 
is  diflferent  from  every  other  man's  way. 
There  is  and  can  be  no  cut  and  dried  form  or 
system  to  apply.  The  principle  which  can  be 
observed  in  all  of  them  is  to  charge  the  stock 
with  the  coal  received,  keeping  each  grade 
and  kind  segregated  in  its  proper  column. 
The  stock  is  credited  with  all  sales  in  the 
same  manner,  each  grade  and  kind  receiving 
credit  as  the  sales  are  recorded.  The  differ- 
ence between  the  amount  sold  as  deducted 
from  the  amount  on  hand  is  the  book  inven- 
tory of  the  stock  remaining  on  hand. 

Some  merchants  who  handle  coal  in  rather 
large  volume  maintain  two  records.  One  of 
them  details  the  items  of  the  coal  purchased, 
and  the  other  shows  all  the  details  of  the  coal 

sold.  - 

Others  record  the  two  transactions — the 
buying  and  the  selling — on  one  sheet.  Both 
methods  have  advantages,  but  for  flexibility 
and  greater  efficiency,  the  first  method  is 
favored  for  large  concerns;  the  latter  is  per- 
haps best  adapted  to  small  businesses.  Too 
many  columns  in  any  record  are  apt  to  cause 
confusion.  There  is  danger  of  getting  too 
many  columns  where  purchase  and  sales  are 
recorded  on  one  sheet.  The  second  form,  here 
mentioned,  has  a  column  for  the  coal  bought 
and  another  for  coal  sold.  Since  this  double 
column  record  will  have  to  be  kept  for  each 
grade,  the  tendency  is  to  make  the  record 
bulky  and  inconvenient  to  handle. 

A   very    comprehensive   purchase   record   is 
that  in  use  in  a  Chicago  retail  coal  merchant's 
office.    The  form  is  on  the  loose  leaf  principle 
and    requires    two    pages    for    the    complete 
record.     The  columns  are  headed  in  the  fol- 
lowing order:     On  the  first  page,  "Purchased 
From,"  "Kind,"  "Date  Invoice,"  "Initial,'  "Car 
No.,"  "Weight  Billed,"  "Price,"  "At,"  "Amount 
Billed,"    "Demurrage    Paid,    the    Amount   and 
Date,"  "Freight  Paid,  the  Amount  and  Date,^^ 
"Railroad,"   "Date    Delivered,"    "Paid    Shipper, 
the  Amount   and  Date."     On  the   second  page : 
"Total  Weight,"  "Large  Egg."  "Small   Egg, 
"Range."  "Chestnut,"  "No.  2  Nut,"  "Buckwheat, 
"Screenings,"  and  seven  colunms  not  headed 
for  other  grades  and  other  commodities. 

It  will  be  noted  that  the  first  page  is  used 
for  all  the  money  transactions  involved  in  the 
purchases;  the  second  page  is  concerned  only 
with  the  coal  itself.  The  items  on  the  first 
page  affect  only  the  values;  the  items  on  the 
second  page  affect  only  the  quantities. 

The  first  line  on  these  pages  is  devoted  to 
the  amounts  brought  forward  from  preceding 
pages.  As  the  second  page  covers  the  quanti- 
ties, the  word  "Inventory"  is  printed  on  the 
top  line  on  that  page.  The  other  hues  are 
numbered  consecutively  on  each  page,  so  that 
the  corresponding  entries  on  the  two  pages 
may  be  followed  without  confusion.  This 
form  is  printed  in  two  colors— pink  and  blue. 


The  record  for  anthracite  is  kept  on  the  blue 
form  and  the  record  for  bituminous  coals  is 
kept  on  the  pink  form.  When  in  use,  this 
form  serves  the  purpose  of  a  stock  record,  a 
perpetual  inventory,  a  car  record,  demurrage 
record  and  practically  gives  the  history  of 
each  car  load  of  coal  from  the  mine  until  it  is 
laid  down  in  the  bin. 

In  conjunction  with  the  purchase  record, 
the  same  dealer  has  a  daily  sales  report  also 
on  the  loose  leaf  principle.  This  form  re- 
quires but  one  sheet  for  the  complete  record. 
The  headings  of  the  columns  are  in  this  order: 
"Month,"  "Day,"  "Ticket,"  "Sold  to,"  "Ad- 
dress," "Price,"  "Labor,"  "Charge,"  "Cash," 
"Total  Weight." 

The  kinds  of  coal  are  grouped  under  these 
headings:  "Anthracite  Sales  Tonnage,"  and 
"Bituminous  Sales  Tonnage."  Under  the  An- 
thracite group  are  the  columns  sub-headed, 
"Grate,"  "Egg,"  "Stove,"  "Chestnut,"  "Pea." 
The  sub-heads  under  the  Bituminous  group 
are,  "Pocahontas,"  "Hocking,"  "Indiana," 
"Cannel,"  and  two  columns  left  blank  for 
other  kinds  of  bituminous  coal.  The  last  two 
columns  on  the  form  are  headed  "Coke"  and 
"Wood." 

This  form  gives  a  complete  history  of  the 
coal  from  the  bin  to  the  consumer.  It  shows 
the  day  of  the  transaction;  the  number  of  the 
sales  ticket;  the  name,  the  address,  the  inci- 
dental labor  and  the  total  charge  to  the  con- 
sumer. The  other  columns  are  used  in  segre- 
gating the  coal  into  the  different  kinds  and 
grades.  The  totals  of  the  different  kinds  of 
coal  on  this  form  deducted  from  the  corre- 
sponding totals  on  the  purchase  forms  will 
quickly  give. a  book  inventory  of  the  amount 
of  coal  on  hand. 

These  purchases  and  sales  records  are  the  final 
result  of  long  experience  in  the  retail  coal 
business  and  from  the  various  totals  can  be 
secured  practically  all  the  information  neces- 
sary to  base  the  cost  per  ton. 

It  may  appear  that  the  forms  and  the 
methods  are  too  elaborate,  but  when  it  is 
considered  that  they  record  all  the  items  al- 
most at  the  time  of  a  transaction  and  that 
a  complete  summary  of  the  business  to  date 
may  be  secured  at  the  close  of  any  one  day's 
business,  it  will  be  granted  that  they  fulfill 
their  function  adequately.  -  A  shorter  form 
which  will  serve  nearly  every  purpose  of  the 
one  described,  but  which  is  not  as  complete 
in  detail,  is  illustrated  herewith.  In  the  short 
form  the  groups  indicating  the  kinds  of  coal 
are  left  blank  and  only  the  headings  indicating 
the  grades  are  shown.  Forms  of  this  nature 
will,  of  course,  vary  greatly.  One  that  is  ap- 
propriate to  a  certain  territory  could  not  be 
used  in  another.  Still,  the  underlying  principle 
in  all  of  them  is  the  same.  The  coal  merchant 
can  use  this  principle  in  preparing  records  to 
suit  his  own  particular  need. 

The  accounting  point  to  be  urged  is:  Coal 
represents  money.  Unless  the  coal  is  accu- 
rately accounted  for,  it  is  impossible  to  ac- 
count accurately  for  the  money.  If  books 
are  to  be  right,  the  stock  record  inventory 
must  be  right. 


14 


THE  BLACK  DIAMOND'S  PRIMER 


OF  RETAIL  COST  ACCOUNTING. 


IS 


Chapter  Five 


Making  Sure  That  All  Direct  Expenses  Are  Charged  to  the  Proper  Place  to  Keep  the 

Cost  of  Handling  Accurate  and  Dependable. 


In  retail  coal  accounting,  at  once  the  most 
bothersome  and  most  important  department  of 
the  accounts  is  made  up  of  those  charges  which 
are  "direct  expenses'*  incident  to  handling  the 
coal. 

The  ordinary  retail  coal  accountant  finds  these 
items  bothersome  for  this  reason:  If  a  man 
knows  what  he  must  charge  for  any  particular 
kind  or  grade  of  coal,  he  must  also  know,  to  the 
penny  per  ton,  what  that  coal  cost  him.  To  find 
that  figure,  he  must  not  only  take  account  of  his 
mine  prices  and  freight  bill,  but  he  must,  of  neces- 
sity, charge  to  each  coal  every  penny  that  was 
spent  upon  it. 

But,  when  it  comes  to  making  each  of  these 
charges  in  such  a  way  they  are  technically  ac- 
curate, a  big  practical  difficulty  presents  itself. 
The  expense  incurred  in  handling  coal. inside  the 
yard  is  mostly  for  labor.  The  laborer  is  under 
the  direction  of  the  yard  foreman,  who  shifts 
him  from  place  to  place  and  from  job  to  job.  The 
foreman  does  not  report  to  the  bookkeeper  with 
anything  like  detailed  precision  the  movements  of 
his  men.  The  bookkeeper  himself  is  not  in  the 
yard  and  cannot,  therefore,  keep  accurate  ac- 
count of  each  piece  of  work  done  by  each  man. 
Because  of  the  absence  of  any  possible  simple 
connecting  link  between  the  yard  orders  and  the 
book  entries,  it  is  impossible  to  make  each  charge 
exactly  to  the  bin  where  it  should  be.  An  inaccurate 
charge  is  worse  than  none.  For  this  reason,  it 
is  best  not  to  try  to  tie  each  item  of  yard  labor 
expense  down  to  a  particular  grade  of  coal  or 
to  a  particular  bin  containing  a  particular  size. 
Practicality  dictates  that  general  yard  labor,  for 
example,  should  be  apportioned  over  the  whole 
work,  the  same  as  the  foreman's  salary. 

However,  where  any  kind  of  work,  like  team- 
ing, is  performed  by  any  number  of  men  who  do 
nothing  else,  it  is  easily  possible  and  proper  to 
charge  the  individual  coals  exclusively  with  that 
expense. 

This  general  application  of  certain  rapidly  fluc- 
tuating expenses,  does  not,  however,  warrant  any 
yard  manager  in  being  careless  about  keeping  ac- 
curate account  of  them.  It  was  said,  at  the  be- 
ginning of  this  volume,  that  the  coal  cost  is  fixed 
within  reason,  both  by  the  stability  of  the  mine 
price  and  by  the  arbitrary  character  of  the  freight 
rate.  The  selling  price  also  is  nearly  fixed  be- 
forehand. Between  the  fixed  cost  of  coal  and 
the  fixed  selling  price,  the  retailer  has,  at  best, 
but  narrow  room  in  which  to  maneuver  to  get  a 
profit.  Some  of  the  items  which  determine  whether 
or  not  he  is  going  to  make  a  profit  are  those  fluc- 
tuating ones  which  are  included  in  "direct  ex- 
pense." If,  through  carelessness,  they  are  per- 
mitted to  grow  and  are  too  high,  he  loses  money. 
If  they  can  be  reduced  by  supervision  he  is  mak- 
ing money. 

Therefore,  in  order  to  keep  his  expense  within 
the  boundaries  that  assure  a  profit,  the  dealer 
must  know  to  a  fraction  just  how  much  each 


part  of  his  work  is  costing  him.  If  one  part  en- 
tails too  great  an  expense,  some  way  must  be  de- 
vised to  bring  it  within  reasonable  limits.  For 
example,  if  the  coal  merchant  discovers  that  the 
amounts  paid  for  unloading  coal  from  the  car 
to  the  bin  are  too  great  he  must  pay  a  less  rate 
per  ton  or  devise  some  mechanism  which  will 
lower  the  cost.  His  only  alternative  is  to  see 
his  profits  eaten  up  by  that  expense. 

A  large  firm  in  a  city  in  northern  Indiana  in- 
stalled a  cost  accounting  system.  In  going  over 
the  stable  expense,  it  was  found  that  the  horses 
were  eating  an  unbelievable  quantity  of  oats.  In- 
vestigation showed  that  the  man  in  charge  of  the 
stable  was  making  a  nice  little  side  profit  by  pur- 
chasing oats  for  the  firm  and  selling  them  for  his 
own  account.  This  shows  one  of  the  many  uses 
of  a  detailed  charge  to  each  department  of  ev- 
ery expense  in  that  department. 

In  the  same  way  the  cost  of  the  movement  of 
each  kind  and  grade  of  coal  must  be,  periodically, 
analyzed.  By  this  analysis  only  can  the  dealer 
discover  whether  and  where  his  profits  are  be- 
ing diverted. 

In  the  movement  of  each  coal,  from  the  time  it 
is  included  in  the  stock,  some  expense  is  incurred 
on  each  coal  that  does  not  affect  in  any  way  the 
cost  of  any  other  grade  or  kind.  The  "direct  ex- 
penses" affecting  the  movement  of  the  coal  it- 
self we  have  indicated  as  belonging  to  "Group 
B"  or  "operating  expense"  in  our  broad  classifi- 
cation of  accounts. 

To  accomplish  the  segregation  of  these  costs  so 
that  they  may  take  their  proper  place  in  the 
books,  it  is  necessary  that  each  of  the  "operating 
expense"  accounts  be  defined.  In  giving  these  defi- 
nitions attention  is  again  called  to  the  fact  that 
the  amounts  considered  as  wages  to  certain  per- 
sons in  reality  mean  amounts  paid  for  certain 
services,  that  is,  one  person  may  perform  one  or 
more  of  the  functions,  but  his  compensation  must 
be  split  up  among  various  accounts.  The  book- 
keeper here  must  consider  that  the  worker  is 
employed  for  a  time  by  a  certain  account  which 
must  pay  his  wages  for  the  time  employed. 

The  next  account  to  be  considered  covers  work 
done  on  the  coal  inside  of  the  yard.  It  covers 
the  superintendence  of  that  work  and  the  labor 
performed.     The  account  is : 

No.  15.  Yard  Foremen  and  Yard  Labor:  To 
this  account  should  be  charged  the  wages  of  the 
foreman  who  is  in  charge  of  all  the  activities  in 
the  yard.  His  duties  compel  him  to  spend  some 
time  on  each  detail  of  the  outside  work.  Because 
it  is  impossible  to  determine  how  much  time  he 
gives  to  each  detail,  his  compensation  should  be 
prorated  over  all  the  items  which  go  to  make  up 
the  total  of  yard  expense. 

To  this  account  should  be  charged  also  the 
wages  of  the  men  employed  as  yard  laborers.  This 
labor  is,  as  a  rule,  as  varied  as  are  the  duties  of 
the  yard  foreman..  The  yard  man  may  be  em- 
ployed  consecutively,  in  cleaning  the  premises; 


in  making  small  repairs;  in  loading  wagons;  in 
unloading  cars;  in  clearing  of  repairing  road- 
ways, and  in  any  of  the  many  things  necessary 
in  and  about  a  coal  yard.  It  is  manifestly  im- 
possible, where  no  timekeeper  is  employed,  to 
keep  account  of  the  tinve  spent  on  each  little 
piece  of  work.  Hence,  for  convenience  in  ac- 
counting, this  item  of  expense  must  be  prorated 
over  the  whole  work. 

If,  however,  the  yard  man  is  used  for  any  con- 
siderable length  of  time  upon  a  certain  set  piece 
of  work,  such  as  bagging  coal  or  coke,  a  record 
may  be  taken  of  that  time  and  the  infoniiation 
used  for  purposes  of  arriving  at  a  detailed  state- 
ment of  the  expense  of  that  work.  However, 
this  labor  is  so  general  by  nature,  that  all  parts 
of  the  work  should  bear  its  proper  proportion  of 
its  expense. 

No.  16.  Unloading  Expense:  To  this  account 
should  be  charged  the  amounts  paid  to  the  la- 
borers who  shovel  the  coal  from  the  cars  into  the 
bJr.s.  This  compensation  is  usually  paid  on  the 
piece  work  basis;  that  is,  the  men  are  paid  so 
much  per  ton  handled,  therefore,  the  amount 
varies  with  the  weight  of  the  contents  of  the  car. 
H  the  shoveler  is  paid  on  a  daily  or  weekly  basis, 
a  record  should  be  kept  of  the  time  spent  on 
each  car,  and  hence  upon  each  kind  and  grade 
of  coal.  The  expense  so  found  should  be  charged 
accordingly.  By  the  piece-work  method,  each 
grade  and  kind  would,  of  course,  be  charged 
automatically  with  the  expense  as  the  work  was 
performed. 

To  this  account  also  should  be  charged  the 
cost  of  operating,  maintaining  and  repairing  any 
mechanical  appliances  used  for  unloading  coal, 
such  as  car  scrapers  and  portable  conveyor  belts 
and  their  trucks,  the  cost  of  the  power,  oil, 
maintenance,  repairs  and  renewals  to  the  ma- 
chines should  be  included.  Also,  all  labor  which 
handles  the  machines  or  devices  should  be 
charged  to  the  unloading  expense. 

No.  17.  Teaming  Expenses:  To  this  account 
should  be  charged  all  items  of  expense  incurred 
in  delivering  the  coal  to  the  consumer  and  also 
all  items  of  expense  which  are  necessary  parts 
of  making  that  delivery  possible.  Thus,  this  ex- 
pense involves  the  horses,  their  feed  and  care, 
the  harness  upkeep  and  repairs,  the  wagons,  main- 
tenance, repairs  and  renewals,  the  auto  truck,  sup- 
plies, maintenance,  renewals  and  repairs.  For  the 
purpose  of  cost  analysis,  it  would  be  best  to 
subdivide  this  account  into  four  sub-accounts  to 
cover  the  stable  expense,  the  horses,  the  actual 
delivery  expense,  and  the  equipment.  We  will, 
for  convenience,  proceed  on  that  basis,  styling  the 
first  account  "17  A.  Stable  Expense."  To  this 
account  should  be  charged:  The  wages  paid  to 
the  stable  boss  and  the  hostlers ;  the  cost  of  the 
hay,  oats,  corn  and  other  feed ;  the  cost  of  haul- 
ing away  manure;  the  cost  of  repairs  and  re- 
newals, the  water  and  the  lights  used  in  the 
stable. 

The  second  sub-account  will  cover  the  expense 
of  the  horses  and  we  will  call  it  "17  B.  Horses." 
To  this  account  should  be  charged :  The  amounts 
paid  to  the  veterinary;  the  medicines  used;  the 
repairs  and  renewals  of  the  tools  and  mechani- 
cal appliances  used  in  keeping  the  horses  clean 
and  in  condition;    the  cost  of  horse  shoes,  and, 


in  case  a  horseshoer  is  employed,  his  wages 
should  be  included  in  this  account. 

The  third  sub-account  relates  to  the  equipment, 
the  harness  and  wagons.  We  will  call  is  "//  C. 
Equipment"  To  this  account  should  be  charged : 
The  cost  of  repairs  and  renewals  of  the  harness ; 
the  amounts  paid  for  soaps  and  oils  to  maintain 
the  harness  in  presentable  condition;  the  polish 
necessary  to  furbish  the  ornaments,  and  all  in- 
cidental expenses  incurred  in  keeping  the  har- 
ness in  working  order.  To  this  account  should 
also  be  charged:  The  cost  of  repairs  and  re- 
newals to  the  wagons;  the  cost  of  renewing  the 
paint;  the  cost  of  repairs  and  renewals  of  the 
metal  chutes  used  in  unloading,  and  all  inci- 
dental expenses  necessary  to  keep  the  wagons  in 
efficient  working  order. 

To  sub-account  "17  D"  should  be  charged  the 
wages  of  the  teamsters  and  the  amounts  paid  to 
the  labor  used  to  carry  in  coal.  This  latter 
amount  is  usually  an  extra  charge  on  the  con- 
sumer. In  that  case  the  coal  dealer  is  only  an 
agent  for  the  consumer  and  this  amount  should 
not  be  charged  to  this  account.  If,  however,  the 
carry-in  charge  is  not  an  extra  charge  on  the  con- 
sumer, the  dealer  must  add  this  amount  to  his 
cost  of  handling. 

It  often  happens  that  a  dealer  does  not  main- 
tain his  own  delivery  service,  usually  making  a 
contract  for  this  work  with  some  drayage  con- 
cern. This  condition  also  obtains  even  with 
dealers  who  own  their  teams,  especially  during 
the  rush  seasons,  when  the  home  equipment  has 
more  than  it  can  handle,  it  is  necessary  to  obtain 
outside  help.  For  this  charge  it  would  be  better 
to  maintain  yet  another  sub-division  of  the  ac- 
count "Teaming  Expense"  and  style  it  "Cartage." 
Entries  in  such  an  account  should  only  be  made 
in  the  cases  cited,  t  e.,  to  record  amounts  paid  to 
outside  parties  for  delivery  work  ordinarily  ac- 
complished by  the  dealer's  own  equipment. 

There  is  another  class  of  equipment  used  in 
the  delivery  of  coal  the  expenses  for  which 
should,  in  our  opinion,  be  recorded  in  a  separate 
set  of  accounts.  We  refer  to  the  auto  trucks. 
While  there  are  no  teams  involved,  the  service 
performed  by  the  truck  is  the  same  as  that  done 
by  the  teams  and  the  expenses  incurred  come 
under  the  head  "Teaming  Expense."  The  majority, 
of  coal  merchants  using  auto  trucks  also  use 
teams,  hence  the  expenses  incurred  in  making 
deliveries  is  placed  in  the  teaming  expense  ac- 
count. Therefore,  to  this  account  should  be 
charged  the  wages  of  the  driver,  the  cost  of  the 
gasoline,  the  oils,  the  maintenance,  repairs  and 
renewals  of  the  machinery  and  tires,  the  cost  of 
maintaining  and  repairing  the  unloading  chutes 
and  all  expenses  incidental  to  the  operation  of  the 
auto  trucks. 

To  this  account  should  be  charged  the  cost 
of  maintenance,  repairing  and  operating  the  ga- 
rage and  all  the  cost  of  maintaining,  repairing  and 
operating  the  machinery  and  appliances,  gasoline 
tanks,  air  compressors,  hose  and  all  the  necessary 
appurtenances.  The  wages  of  the  garage  atten- 
dants and  the  expense  of  maintaining  the  per- 
formance sheets,  1.  e.,  the  record  of  the  work 
done  by  the  auto  trucks,  should  also  be  charged 
here. 


16  THE  BLACK  DIAMOND'S  PRIMER 

Chapter  Six 

Pocket  Expenses  Are  Mainly  Charges  to  Mechanical  Labor  and  Demand  a  Separate  Ac- 

count—Hoiv  to  Account  for  Shortage  and  Demurrage, 


The  retail  coal  merchants'  business  may  be 
summarized  in  three  crisp  words — buying,  selling 
and  delivery.  Coal  yard  accounting  is  more  con- 
cerned with  delivery  than  with  the  other  two  fac- 
tors in  the  trinity.  That  is  true  first  because  de- 
livery and  its  costs  dig  so  deeply  into  the  margin 
between  buying  and  selling  price,  and,  second; 
because  as  it  is  made  up  of  so  many  complex 
items  which  must  be  accounted  for. 

For  one  thing,  the  time  factor  in  delivery  is  a 
most  vital  item.  The  passing  of  time,  alone, 
means  nothing  to  the  accountant.  When  that 
time  is  burdened  by  a  fixed  cost  per  hour,  it 
means  everything  to  him. 

One  who  must  pay  out  money— figuratively,  ev- 
ery time  the  clock  strikes,  learns  to  see  that  that 
labor  is  producing  something  which  returns  more 
than  he  pays  out.  If  delivery  is  done  mainly  by 
labor,  is  done  in  part  by  means  of  mechanical 
devices,  makes  no  difference  to  the  accountant. 
He  says  that  all  labor  used  to  accomplish  a  cer- 
tain result  must  be  paid  for.  If  the  labor  of  ma- 
chines does  the  work  within  a  shorter  time  than 
is  possible  by  means  of  hand  labor,  he  is  inter- 
ested in  machine  labor  because  it  makes  a  lighter 
draft  upon  the  cash  box.  But,  hand  labor  was  in 
use  before  machines  were  dreamed  of.  The  work 
of  the  laborers  is  accounted  for  in  the  time  sheet 
— a  point  which  all  accountants  know.  However, 
the  accountant  knows  that  there  must  also  be  an 
accounting  for  the  work  of  the  machine;  the  de- 
vice must  have  its  time  sheet. 

The  machine  most  in  evidence  in  the  yard  of 
the  retail  coal  man  is  the  coal  pocket  and  its 
conveyors,  etc.  This  mechanical  labor  is  in  a 
class  by  itself,  for  which  reason  it  is  necessary  to 
maintain  on  the  coal  merchant's  books  a  separate 
account  with  this  part  of  the  equipment.  This  is 
necessary  because  the  device  cost  money  and  it 
is  advisable  to  determine  definitely  wherein  and 
whether  the  pocket  reduces  the  cost  of  handling, 
which  is  one  item  in  the  big  cost  of  delivery.  The 
coal  pocket  and  its  machinery  must  have  their 
own  labor  charges  to  account  for  the  time  of  the 
men  employed  on  them,  therefore,  we  have: 
No.  i8.  Pocket  Labor:  To  this  account  is 
charged  the  wages  of  the  foreman  in  charge ;  the 
men  who  make  the  necessary  repairs;  the  engi- 
neer, and,  if  a  steam  plant,  the  oilers  and  the  fire- 
men. The  accountant  who  is  familiar  with  such 
things  will  recognize  here  one  division  of  "manu- 
facturing accounting." 

There  will  be  necessary,  for  the  pocket,  a  lot 
of  material  and  supplies.  All  of  these  will  be 
used  in  operation  and  should  be  charged  to  a 
separate  account.  This  account  is  No.  ig.  Pocket 
Supplies:  To  this  account  should  be  charged  all 
material  and  supplies  necessary  to  operate  and 
maintain  the  coal  pocket.  There  should  be  in- 
cluded all  charges  for  lumber  to  repair  the  bins ; 
the  bolts;  the  cost  of  link  chains  to  repair  or 
replace  worn  out  or  broken  links  in  the  conveyor 


chains ;  the  cost  of  buckets  used  for  replacement ; 
the  oils;  the  electrical  supplies  necessary  for  the 
motor;  the  cables  used  for  spotting  cars;  the 
waste  for  cleaning  machinery;  the  material  for 
replacing  and  repairing  the  loading  chutes;  and 
all  the  miscellaneous  items  necessary  to  keep  the 
pocket  in  first-class  working  order. 

At  this  point  in  our  series  of  articles  on  ac- 
counting we  have  provided  for  all  the  expenses 
which  spring  from  handling  the  coal.  We  have 
put  a  finger  on  each  item  of  expense  and  have 
told  where  and  why  it  must  be  charged.  The  ex- 
penses thus  treated  must  be  incurred  by  every 
coal  merchant  whether  his  business  is  large  or 
small.  Every  ton  of  coal  handled  must  carry  its 
portion — and  its  just  portion — of  these  expenses. 
In  many  cases,  all  of  the  expenses  there  placed 
must  have  a  direct  bearing  upon  the  cost  of  hand- 
ling a  given  coal. 

There  are,  however,  some  charges  which  may 
or  may  not  be  incurred.  They  may  be  termed  oc- 
casional expenses,  although  they  make  up  a  part 
of  every  man's  expense  at  some  time  or  another. 
These  are  expenses  which  must  be  added  to  the 
cost  of  handling,  despite  the  fact  that  the  dealer 
has  not  of.  his  own  volition  created  them  and  has 
no  chance  whatever  to  offset  them  by  a  credit, 
anywhere. 

We  refer  here  to  the  charges  for  demurrage 
and  for  shortage. 

These  charges  are  not,  in  reality,  necessary,  jnd 
wholly  unavoidable.  But,  they  are,  as  stated,  very 
common,  wherefore,  when  they  do  occur  they 
must  be  considered  by  the  accountant  as  additions 
to  the  cost  per  ton  of  handling  coal.  To  get  them 
in  a  proper  place  upon  the  books  the  following 
accounts  are  provided: 

No.  20.  Demurrage:  To  this  account  bliould  be 
charged  all  amounts  paid  to  the  railroad  compa- 
nies as  penalties  for  delay  in  unloading  their 
cars.  If  the  dealer  is  unable— through  lack  of 
storage  space  or  inability  to  secure  labor — to 
empty  the  car  within  the  time  specified  by  the 
regulations  of  the  railroad  company  he  must,  in 
effect,  use  the  car  as  a  warehouse.  Therefore, 
the  charge  is  a  "direct  expense"  on  the  coal  the 
same  as  its  storage  bin  or  pocket  expense,  and 
the  amount  of  the  demurrage  must  be  added  to 
the  cost  of  that  coal. 

The  space  in  which  to  record  this  charge  is 
provided  in  the  "purchase  record"  a  description  of 
which  is  to  be  found  in  Chapter  Four  of  this  vol- 
ume. This  charge  is  a  voracious  eater  of 
profit.  Frequently  it  grows  to  size  through 
the  carelessness  and  mismanagement  of  the 
coal  merchant.  The  column  in  the  pur- 
chase record  should  be  frequently  scrutinized 
and  frequent  references  to  this  record  should 
have  for  their  purpose  the  steady  reduction  of  the 
expense.  Careful  watching  of  this  item  will  fre- 
quently eliminate  this  charge  altogether.  A  good 
plan  for  scrutinizing  this  cost  is  to  keep  an  inde- 


OF  RETAIL  COST  ACCOUNTING. 


17 


pendent  record  of  cars  as  received  and  provide 
a  column  which  will  show  on  what  date  the  car 
is  up  to  demurrage.  That  being  done,  the  mer- 
chant can  arrange  the  movement  of  his  coal  ac- 
cordingly. However,  this  account  on  the  books 
is  only  a  place  to  record  the  amounts  that  have 
been  paid  the  railroad  company  for  the  release 
of  the  car.  It  therefore  becomes  a  charge  upon 
the  particular  kind  of  coal  contained  in  the  car. 

The  shortage  account  is  a  source  of  great  an- 
noyance to  the  retail  coal  merchant.  It  usually 
emanates  from  the  unscientific  and  all  but  un- 
conscionable system  by  which  coal  weights  are 
obtained  and  upon  which  transportation  charges 
are  based.  Coal  customarily  is  shipped  subject  to 
mine  weights  and  is  so  invoiced.  The  railroad 
company  is  governed  by  the  invoice  weight  in 
billing  the  car,  subject  only  to  correction  in 
transit— which  seldom  is  done.  While  the  car 
is  in  transit,  from  the  mine  to  destination,  some 
of  the  coal  falls  off.  In  addition,  a  certain  amount 
is  lost  by  theft.  If  the  coal  is  transferred  en 
route— which  is  unusual— another  and  heavy  loss 
in  weight  is  liable  to  occur.  All  these  things 
being  considered,  it  not  infrequently  happens  that 
the  weight  of  coal  the  merchant  pays  for  and 
the  weight  he  receives  are  very  much  at  variance. 

Sometimes  this  difference  may  be  adjusted 
through  a  claim  against  the  carrier.  More  often 
the  difference  is  just  small  enough  to  make  it 
unprofitable  to  handle  through  the  claim  chan- 
nel and  it  becomes  a  dead  loss  to  the  coal 
merchant. 

If  a  claim  is  made  for  the  loss  there  is  added 
the  expense  of  making  and  handling  the  claim 


usually  involving  a  long  and  tedious  correspond- 
ence. When  this  shortage  occurs  it  must  be 
cared  for  in  the  accounts  hence.  No.  2i  Shortage: 
To  this  account  should  be  charged  all  amounts 
representing  the  loss  of  tonnage  in  transit.  If  a 
claim  is  made  the  amount  of  the  claim  should 
be  credited  to  the  shortage  account  and  charged 
to  the  accounts  receivable,  thus  eliminating  the 
charge  as  a  factor  in  cost.  If  the  claim  is 
rejected  the  charge  must  be  replaced  against  the 
coal  and  the  accounts  receivable  credited.  The 
expense  of  making  and  handling  the  claim  will  be 
taken  care  of  in  the  general  overhead  expense,  as 
this  is  a  matter  which  must  be  handled  by  the 
office  force. 

By  handling  the  shortage  account  in  this  man- 
ner the  bin  will  be  charged  with  the  full  in- 
voice weight  and  the  shortage  accounted  for  in 
the  shortage  account  This  will  have  the  effect 
of  crediting  the  bin  with  the  tonnage  lost  and 
show  the  true  tonnage  contained  therein. 

This  account  is  only  for  the  shortages  that 
occur  while  the  car  of  coal  is  in  transit  to  the 
dealer  and  does  not  include  shortages  that  occur 
after  he  has  accepted  the  coal.  These  latter 
shortages  are  usually  caused  by  pilferage  from 
the  yard  and  by  the  degradation  of  the  coal  while 
in  storage.  This  loss  is  usually  termed  shrink- 
age and  should  be  taken  care  of  at  the  time  of 
inventory.  Some  of  the  loss  that  occurs  in  the 
process  of  degradation  may  be  recovered  by  the 
sale  of  the  coal  as  some  other  grade,  such  as 
slack.  In  that  case  the  bin  should  be  credited 
with  the  sum  realized  from  the  sale  of  the 
degraded  coal. 


i 


18  THE  BLACK  DIAMOND'S  PRIMER 

Chapter  Seven 

Having  Told  in  Previous  Chapters  What  to  Do  and  IJ'hy,  This  Article  Be^^ins  to  Tell  in 

Detail  How  to  Do  It — A  Lesson  in  Methods. 


OF  RETAIL  COST  ACCOUNTING. 


19 


A  story  is  told  of  a  man  who  wanted  to  learn 
to  play  the  violin.  He  worked  patiently  on  "ex- 
ercises" for  years  and  years.  Finally,  he  tired  of 
that  juvenile  work  and  went  to  the  instructor 
asking  that  he  be  given  some  "music"  to  play. 
The  professor  smilingly  replied  that  the  last 
"exercise"  was  the  most  difficult  piece  of  music 
ever  -written  for  the  violin.  The  man  had 
become  a  master  without  knowing  it. 

We  have  written  six  rather  long  chapters 
on  retail  coal  yard  accounting.  They  seemed 
to  be  mostly  definitions  and  statements  as 
to  where  certain  charges  and  credits  should 
be  made,  and  why.  This  seemed,  all  the  while, 
to  be  merely  "breaking  ground"  for  what  we  had 
to  say.  However,  any  man  who  has  digested 
what  has  gone  before  has  learned  about  all  there 
is  to  accounting  if  the  purpose  is  to  find  a  way 
to  determine  retail  coal  cost.  If  he  knows  what 
a  charge  is  and  where  to  make  it  and  if  he  un- 
derstands the  same  thing  about  a  credit,  he  has 
mastered  the  whole  subject  of  bookkeeping.  The 
remainder  of  it  is  merely  so  much  detail — it  is 
only  writing  down  what  he  knows  in  a  book.  It 
will  be  easy,  now  that  the  rules  of  the  game  have 
been  recited,  to  tell  how  to  apply  those  rules.  The 
application  will  be  so  simple  we  will  spend  very 
little  time  over  it. 

That  is,  we  have  devoted  our  efforts  heretofore 
to  defining  and  classifying  the  various  items 
which  must  be  considered  when  one  starts  to  fig- 
ure the  cost  of  handling  coal.  We  have  segre- 
gated the  various  expenditures  into  classes  and 
have  indicated  their  proper  location  in  the  books. 
We  must  now  assemble  this  information, 
placing  the  items  in  their  proper  relation  so  that 
each  grade  and  kind  of  coal  handled  shall  be 
charged  with  its  pro  rata  proportion  of  the  en- 
tire expense  of  the  business.  In  other  words, 
we  must  make  our  ledger  tell  us  wherein  we  have 
done  well  or  ill ;  how  we  can  improve  our  meth- 
ods, and,  whether  any  of  our  many  items  of  cost 
can  be  reduced. 

For  example,  if  any  of  the  items  are  costly  out 
of  reasonable  proportion,  to  what  it  should  be 
or  has  been,  it  is  evident  that  there  is  or  has 
been  some  mismanagement  as  far  as  the  work 
represented  by  that  item  is  concerned.  Knowing 
the  facts,  it  behooves  us  to  remedy  the  fault  as 
soon  as  possible.  The  books  point  the  way ;  the 
remedy  lies  with  the  management. 

It  may  be  that  a  certain  piece  of  equipment  is 
absorbing  too  much  revenue  in  order  to  keep  it 
in  repair.  It  is  self  evident  that,  knowing  the 
facts,  real  economy  would  dictate  the  relegation 
of  that  equipment  to  the  junk  pile  and  the  pur- 
chase of  new  machinery,  wagons  or  whatever  it 
might  be.  The  books  point  the  way;  the  man- 
agement must  apply  the  remedy. 

The  overhead  expense  might  be  a  great  deal 
heavier  than  the  business  warrants.  In  such  an 
event,  an  overhauling  of  official  and  clerical  sal- 


aries would  be  necessary  in  order  to  bring  this 
expense  down  to  its  proper  level  in  the  disburse- 
ments for  expenses.  In  this  direction,  also,  the 
books  point  the  way ;  the  cure  lies  with  the  yard 
owner. 

In  summarizing  the  various  items  which  in  the 
aggregate  show  the  total  cost  of  handling,  there 
must  first  be  taken  into  consideration  the  mate- 
rial handled.  The  amount  of  coal  on  which  the 
dealer  figures  his  profit  is  the  number  of  tons 
of  coal  sold  only.  That  is,  for  the  purpose  of 
determining  costs  of  handling  only  the  amount  of 
coal  sold  is  used  as  a  basis.  The  expense  for  any 
period  must  be  spread  over  the  sales  of  that  pe- 
riod to  get  the  cost  per  ton. 

The  purchase  record,  described  in  Chapter  Four 
of  this  volume,  gave  the  source  of  the  original 
cost  to  the  dealer.  This  indicated  that  the  cost 
of  the  coal  laid  down  in  the  bin  includes  the 
price  paid  at  the  mine  plus  the  railroad  freight 
rate  to  destination.  It  also  includes  any  extraor- 
dinary charges,  such  as  demurrage  and  all  other 
expenses  incurred  in  placing  the  coal  at  the  dis- 
position of  the  coal  merchant.  For  example,  if  a 
spotting  charge  is  made,  it  will  include  that  item 
also.    These  things  give  the  basis  of  cost. 

The  sales  record,  described  in  the  same  chap- 
ter, is  the  source  of  the  information  as  to  the 
amount  of  coal  sold.  The  base  of  the  cost  of 
handling  is  thus  secured.  In  the  sales  record  is 
given  the  tonnage  and  the  value  of  the  tonnage 
actually  handled  by  the  dealer  in  the  course  of. 
his  business.  It  is  this  tonnage  sold  that  forms 
the  key  to  the  total  cost  of  handling  and  all  our 
figures  are  secured  from  the  manipulation  of  this 
tonnage  in  relation  to  all  the  other  expenses. 
These  other  expenses  as  classified  and  defined  in 
the  preceding  chapters  must  be  considered  in  the 
problem  now  before  us,  which  is  to  assemble  these 
accounts  in  such  a  manner  that  the  result  will  be 
the  total  cost  per  ton  handled. 

After  considering  the  material  and  its  various 
subdivisions,  the  next  item  is  naturally  the  labor 
charges  involved  in  moving  the  material.  By 
labor  charge  we  mean  the  compensation  paid  to 
everyone  working  for  the  coal  company,  from 
the  president  down  to  the  lowest  grade  of  la- 
borer. This  charge  is  generally  designated  under 
the  term  Salaries  and  Wages  and  is  usually  shown 
in  the  balance  sheet  under  that  heading.  I  he 
charge  to  salaries  and  wages  must  be  distributed 
over  the  seven  accounts  as  defined  in  Chapter 
Two  and  as  indicated  with  the  chart  published 
therewith.  The  accounts  affected  follow:  No.  1 
Officials,  No.  2  Office,  No.  3  Selling,  No.  15  Yard 
Foremen  and  Labor,  No.  16  Car  Unloaders,  No. 
17  Teaming  Expense,  the  stable  boss,  hostlers  and 
teamsters  and  Xo.  18  The  Pocket  Expense,  the 
pocket  foreman,  labor,  repair  men,  engineer,  oil- 
ers and  firemen.  It  must  be  remembered  that  all 
of  the  positions  indicated  do  not  mean  persons, 
but  rather  are  used  to  typify  the  various  subdi- 


visions of  labor  and  that  several  of  these  posi- 
tions may  be  held  and  the  duties  performed  by  one 
man.  In  making  up  the  pay  rolls  it  has  been 
thought  best  to  divide  the  payment  into  four  rec- 
ords as  indicated  in  the  chart  "Distribution  of 
Salaries  and  Wages"  shown  herewith.  In  the  first 
payroll  or  division  will  be  shown  the  salaries  of 
the  officials,  the  president,  vice-president,  secre- 
tary and  treasurer.  As  their  activities  cover  ev- 
erything done  in  the  yard  the  compensation  paid 
them  must  be  distributed  over  the  whole  work.  In 
the  second  payment  or  division  are  included  the 
salaries  paid  to  the  general  manager  and  under 
him  the  salaries  paid  the  cashier,  clerks,  stenog- 
raphers, bookkeepers  and  others  comprising  the 
office  force.  This  compensation  also  must  be  dis- 
tributed over  the  whole  work  as  the  services  in 
which  these  persons  are  engaged  affect  every 
branch  of  the  coal  yards  activities.  The  third  di- 
vision records  the  salaries  paid  the  selling  force, 
the  general  sales  agent  and  his  aides  and  this 
compensation  is  distributed  over  the  whole  work 
in  the  same  manner  as  the  two  preceding  divi- 
sions. For  convenience,  this  expense  is,  however, 
shown  separately,  for  the  reason  that  the  percent- 
age ratio  of  the  increase  and  decrease  of  this  ac- 
count  to  the  increase  and  decrease  in  the  sales' 
determines  the  efficiency  of  the  selling  depart- 
ment. . 

If  the  salesmen  are  on  a  commission  basis  or 
on  a  salary  and  commission  basis  the  compensation 
is  carried  on  this  pay  roll  and  therefore  the  total 
amount  of  the  payments  for  this  expense  will 
vary  each  month.  If  the  sales  are  heavy  this  roll 
will  be  proportionately  heavy  and  if  light  the  roll 
will  be  correspondingly  low.  The  pay  roll  does 
not  carry  any  commissions  advanced  for  any  pur- 
pose. As  has  been  explained  all  commissions  not 
earned  must  be  considered  as  a  loan  from  the 
treasurv  of  the  company  and  are. not  an  expense 
until  they  have  been  earned.  It  is  from  this  roll 
the  general  manager  or  general  sales  agent  de- 
termines the  efficiency  of  each  of  the  salesmen. 
The  fourth  division  or  pay  roll  covers  the  wages 
paid  to  the  men  engaged  in  the  actual  handling  of 
the  coal  and  is  distributed  over  the  four  ac« 
counts  Nos.  15,  16,  17  and  18. 

No.  15  includes  the  wages  paid  the  yard  fore- 
man and  the  wages  paid  the  laborers  engaged  in 
yard  labor.  If  this  yard  labor  is  used  in  unload- 
ing cars  the  time  so  spent  must  be  accounted  for 
separately  in  the  account  Unloading  Expense  and 
the  charge  made  directly  to  the  kind  and  grade 
of  coal  affected. 

In  case  the  yard  labor  is  used  in  sacking  coal 
or  coke  the  time  so  spent  should  be  recorded, 
as  the  expense  should  be  borne  by  the  kind  and 
grade  of  coal  and  coke  sacked.  If  the  laborer 
does  nothing  else  but  sack  coal  of  course  his 
compensation  is  to  be  charged  only  to  the  kind 
and  grade  of  coal  with  which  he  works. 

If  the  labor  is  used  in  the  yard  exclusively,  the 
total  may  be  included  with  the  compensation  paid 
the  yard  foreman  for  the  purpose  of  prorating, 
that  is,  all  the  kinds  and  grades  of  coal  must  bear 
their  proportion  of  the  charge. 

The  wages  paid  the  stable  boss,  the  hostlers, 
the  teamsters  and  other  persons  engaged  in  the 
delivery  of  the  coal  to  the  consumer  should  be 
charged  to  Account  17  "Teaming  Expense."    In 


li 


l! 


I 


THE  BLACK  DIAMOND'S  PRIMER 


this  connection  there  is  a  charge  generally  desig- 
nated as  a  "Carry  In"  charge  which  is  designed 
to  cover  the  cost  of  the  extra  labor  sometimes 
necessary  in  placing  the  coal  in  the  bins  of  the 
consumers.    If  the  dealer  has  to  pay  this  charge 
it  is  proper  to  include  it  in  the  delivery  expense, 
but  if  the  consumer  is  charged  for  this  extra 
service  the  dealer  is  acting  as  an  agent  for  the 
purchaser  and  therefore   is  reimbursed   for   the 
extra  outlay  and  it  is  not  a  proper  charge  to  the 
cost  of  handling.    The  compensation  of  the  men 
employed  on  the  coal  pocket  should  be  charged 
to  Account  18  "Pocket  Labor."    This  account  is 
kept  separate  in  order  to  determine  the  details 
of  the  profit  or  loss  arising  from  handling  the 
coal  with  a  pocket.    The  charge  is  to  be  distribu- 
ted over  only  the  grades  and  kinds  of  coal  han- 
dled by  the  pocket  as  it  affects  only  those  coals. 
In  the  form  Distribution  of  Salaries  and  Wages 
provision  has  been  made  to  distribute  the  four 
divisions  of  the  pay  rolls  to  the  proper  accounts. 
The  first  column  shows  the  total  amount  of  each 
division.    The  grand  total  will  show  all  amounts 
expended   for  Salaries  and  Wages.     The  other 
columns,  headed  with  the  name  and  number  of 
each  account,  will  show  the  total  amount  to  be 
charged  to  each  account  and  prorated  over  that 
part  of  the  work  affected.   It  is  hardly  necessary 
to  go  to  the  expense  of  having  this  form  printed 


as  one  may  be  readily  drawn  in  a  very  few  min- 
utes.    Only  one  of  them  is  needed  each  month 
and  its  various  columns  can  be  filled  from  the 
time  book  or   from  whatever  means  the  dealer 
uses  to   record  his   payments   for  Salaries  and 
Wages.     In  case  a  regular  pay  roll  is  used  the 
pay  roll  form  could  have  the  distribution  printed 
on  the  back  and  thus  the  one  form  could  fulfill 
all  the  requirements  of  the  pay  roll  as  an  ac- 
counting record.     In  case  regular  payroll  forms 
are  used  it  is  usually  the  practice  to  have  the 
roll  in  the  four  divisions  as  described  above.    The 
labor  compensation  as  a  rule  is  paid  weekly  and 
the  Official  and  Office  salaries  are  paid  monthly 
or  semi-monthly.    It  will,  in  that  case,  be  neces- 
sary to  assemble  all  the  payments  at  the  end  df 
the  month  for  the  purpose  of  distribution.    It  is 
recommended  that  the  coal  merchant  provide  him- 
self with  some  blank  forms,  in  size  about  fourteen 
inches  by  twenty-one,  which  will  provide  space 
for  about  twenty  columns  ruled  for  figures  denot- 
ing money  and  enough  space  at  the  left  of  the 
form  for  all  written  details.    These  forms  may  be 
purchased  ready  made  at  nearly  every  stationer's 
and  at  a  very  low  price.    They  will  be  found  to 
be  a  very  great  convenience  for  all  purposes  of 
analysis.     The   accountant   can  use  these   forms 
for  nearly  every  comparison  necessary  for  him 
to  make. 


OF  RETAIL  COST  ACCOUNTING. 


21 


The  Man  Engaged  in  the 

Coal  Business 

as  a  rule  is  wide  awake  and  progressive.  He  knows  a  good  thing  when  he  sees  it.  and  that's  why  THE 
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able amount  of  capital  invested  in  the  coal  business,  out  journal  should  be  of  great  value  to  you,  as  it 
will  keeo  you  informed  on  everything  connected  with  the  coal  trade.        ^,  .,,„„_,  ^.       -j  ».    ^x 

The  wide-awake  coal  man  who  carefully  peruses  THE  BLACK  DIAMOND  acquires  the  «1«*  of 
others.  He  is  quickly  informed  of  the  progress  that  is  being  made  in  the  economical  handling  and  sell  ng 
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invested  in  experiments  BY  OTHERS-all  summarized  and  analyzed  ^JJ^YOU      THE  BLACK 
*i.eks    out   the   successful   men    in    the    coal    industry,   men  who  have  learned  to  DO  by  UUIWU,  ana  wno 
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Addre..  THE  BLACK  DIAMOND 


Chapter  Eight 

How  to  Get  the  Information  Out  of  the  Books  in  a  Way  to  Make  It  Suggest  Certain 

Economies  in  the  Business. 


Manhattan  Bldg. 
Chicago 


Land  Title  Building 
Philadelphia 


29  Broadway 
New  York 


The  books  of  a  coal  company  have  two  dif- 
ferent purposes.  One  of  them  is  to  become  a 
repository  for  information.  A  repository  of 
anything  is,  in  itself,  nothing  of  value.  If  it 
is  a  book  and  if  the  thing  contained  is  informa- 
tion, the  information  may  be  kept  ever  so 
safely  but,  if  no  use  is  ever  made  of  it,  it  might 
as  well  not  exist.  The  books,  under  such  cir- 
cumstances, are  about  as  purposeless  as  a 
miser's  gold.  Getting  information  into  the 
books  is,  therefore,  valuable  only  when  it  can 
be  gotten  out  again  and  made  of  some  use. 

A  bookkeeper  is  a  man  who  puts  the  in- 
formation into  the  books.  Any  clerk  can  stow 
away  anything.  He  may  even  stow  it  away  in 
such  orderly  fashion  it  will  come  out  quickly 
when  wanted.  However,  the  bookkeeper  is 
never  the  man  who  pulls  out  the  information 
from  the  ledger  and  uses  it  to  correct  any  bad 
policies  in  the  business.  If  he  tried,  he  would 
be  discharged  for  his  audacity. 

The  other  or  second  purpose  of  the  books 
is  to  yield  up  an  array  of  facts  that  would 
throw  a  searchlight  upon  the  operations  of  a 
company  of  such  nature  as  to  suggest  where 
wrong  methods  are  heading  toward  loss.  That 
happens  when  the  books  begin,  under  the  hand 
of  a  man  who  knows,  to  divulge  their  con- 
tents in  an  orderly  fashion,  such  a  thing 
makes  suggestions  where  and  when  reforms  in 
practice  should  be  undertaken. 

This  secondary  purpose  of  the  books  is  the 
one,  really,  for  which  they  were  created.  That 
is,  anything  that  is  worth  stowing  away  is 
presupposed  to  have  value  for  use  at  some 
other  time.  Men  put  money  away  with  the 
intention  of  using  it  again.  Business  men  stow 
away  information — especially  information  about 
the  details  of  the  business — only  for  the  purpose 
of  getting  it  out  at  a  time  when  it  will  prove 
valuable.  No  man,  for  example,  would,  actuated 
by  a  mania  for  keeping  records,  record  what  he 
paid  a  yard  man,  merely  to  know  that  he  had 
paid  out  that  money.  This  information  has  value 
when  properly  used.  The  thing  is  to  find  that 
value. 

The  man  who  drags  the  information  out  of 
the  books  and  makes  it  live  is  called — if  that 
is  his  business — an  accountant.  The  small  man 
in  a  business  who  may  not  employ  an  account- 
ant but  who  himself  thus  gives  life  to  the 
books  is  the  owner  or  at  least  the  executive 
head  of  the  concern.  The  books  were  made 
for  him.  The  records  in  those  books  were 
designed  to  teach  him  a  lesson — a  lesson  of 
bitter  experience,  it  may  be.  The  record  is  in- 
tended to  teach  him  to  cut  expenses — if  he  has 
been  letting  things  run  at  loose  ends. 

In  this  primer  on  "accounting"— not  on  book 
keeping — we  have  been  trying  to  tell  the  book- 
keeper— and  the  executive — how  to  arrange 
the  information  in  the  books  so  that  the 
executive    can    get    it    out    of    the    books    and 


tise  it.  We  have  been  teaching  how  to  stow 
the  facts  of  the  business  away  in  such  orderly 
fashion  that  it  will  fall  out  almost  of  its  own 
volition  and  easily  assemble  itself  upon  a  sheet 
where  the  executive  can  get  at  it  quickly  and 
make  it  give  him  a  suggestion  as  to  how  and 
where  to  economize. 

In  this  installment  of  this  accounting  arti- 
cle, we  were  presenting  in  pursuance  of  our 
plan,  to  the  executive  a  chart  upon  which  these 
stored  facts  will  arrange  themselves  in  logical 
order  and  throw  the  needed  searchlight  upon 
the  operation  of  the  whole  plant. 

Before  any  such  chart  is  of  any  value  it  is 
assumed  that  the  coal  merchant  is  ready  to 
distribute  his  entire  expenses — having  kept  de- 
tailed account  of  every  penny — over  the  dif- 
ferent kinds  and  grades  of  coal.  That  is,  he 
wants  to  know  what  is  the  cost  of  handling 
on  each  grade  and  he  starts  to  get  the  informa- 
tion. He  has  closed  his  purchase  record  for 
the  month;  the  totals  of  the  sales  record  have 
all  been  ascertained,  and  it  now  remains  for 
him  to  place  the  resulting  figures  in  their 
proper  relation. 

From  the  purchase  record  he  will  find  that 
on  the  first  of  the  month  he  had  a  certain 
quantity  of  coal  on  hand;  that  during  the 
month  he  purchased  several  more  cars;  that  in. 
the  course  of  receiving  this  coal  he  was  penal- 
ized by  the  railroad  company  for  failure  to 
unload  this  coal  promptly,  and  that  somewhere 
between  the  mine  and  his  bins  some  of  the 
coal  has  either  been  stolen  or  has  fallen  off 
the  car. 

All  of  the  charges,  detailing  the  original  cost 
of  the  coal,  have  been  included  in  the  record 
which  shows:  The  price  of  the  mine;  the 
freight  charges;  the  demurrage  and  the  short- 
age, and  the  cost  of  placing  the  coal  in  the  bins 
ready  for  delivery.  The  total  of  these  charges 
divided  by  the  weight  involved  gives  the  mer- 
chant the  total  original  cost  per  ton. 

On  the  other  hand,  is  the  sales  record  which 
shows  in  detail:  How  much  of  each  kind  and 
grade  of  coal  the  merchant  turned  over  to  the 
consumer  during  the  month;  the  price  and  the 
total  receipts  from  sales.  The  total  of  the  coal 
tonnage  sold,  divided  into  the  total  sales  will 
give  the  price  per  ton  the  merchant  received 
for  his  coal. 

The  difference  between  the  total  cost  per 
ton,  and  the  total  selling  price  per  ton,  will 
give  the  gross  profit  per  ton.  Out  of  this  gross 
profit  the  merchant  must  pay  the  expenses  of 
his  business.  The  difference  between  his  gross 
profits  and  the  expenses  will,  of  course,  be  the 
net  profit  for  which  the  merchant  is  striving. 
From  the  form  which  is  printed  herewith  the 
merchant  may  discover  why  a  certain  coal  is 
profitable  or  unprofitable,  as  the  case  may  be, 
to  handle.  If  the  coal  is  unprofitable  the  mer- 
chant learns  from  this  record  what  item  of  ex- 


THE  BLACK  DIAMOND'S  PRIMER 


OF  RETAIL  COST  ACCOUNTING. 


23 


pense  has  eaten  up  the  profit.  From  these  de- 
tails he  may  learn  at  what  point  he  is  paymg 
too  heavy  a  price  for  the  service  rendered. 

In  preparing  this  form,  the  amount  of  coal 
sold  is  used  as  the  basis,  because  that  is  the 
amount  on  which  the  dealer  figures  his  profit. 
This  tonnage  is  gathered  from  the  footing  on 
the  sales  record  and  is  placed  in  the  space  in 
the  recapitulation  chart  headed  "Tons."  The 
tons  of  each  kind  and  grade  of  coal  are  spread 
over  the  form  in  the  proper  spaces  and  under 
the  headings  indicated.  This  total  tonnage  is 
one  hundred  per  cent  of  the  coal  sold.  The 
tonnages  shown  under  each  heading  will  there- 
fore represent  a  certain  percentage  of  the  total 
tons  sold.  This  percentage  is  ascertained  by 
dividing  the  total  tonnage  into  the  number  of 
tons  of  each  grade.  The  percentage  figure  is 
then   placed   in   the   space   provided   for   that 

purpose. 

A  time-saving  method  of  securing  these  per- 
centages may  here  be  indicated.  It  may  be 
used  in  any  calculation  involving  a  great  many 
sums  in  division  having  a  common  divisor.  It 
is  simply  to  multiply  the  divisor  by  the  digits 
from  one  to  nine,  placing  the  results  on  a 
memorandum  until  all  the  divisions  are  made. 
Thus,  suppose  the  total  tonnage  sold  to  be 
6,200. 

6200X1  •-•'I'lll 

6200X2  J2,400 

6200X8  ll'lll 

6200X4  **'5J5 

6200X5  IJ-OJO 

6200X6 37.200 

6200  X  7  *3.400 

6200  X  8  J?'°"J 

6200  X  9  °5'^°" 

By  this  method  all  the  necessary  multiplica- 
tions are  performed  at  one  time  and  a  good 
deal  of  time  saved  in  making  the  divisions. 

The  total  of  all  the  percentages  thus  found 
should,  of  course,  equal  the  one  hundred  per 

cent. 

From  the  purchase  record  is  ascertained  the 
total  cost  per  ton  of  each  grade  of  coal  at  the 
close  of  the  month.  This  cost  includes  all  the 
legitimate  and  extraordinary  charges  necessary 
to  place  the  coal  in  the  bin.  The  tonnage  of 
each  grade  shown  on  the  form,  "Distribution 
of  Expenses,"  multiplied  by  the  total  cost  per 
ton  will  give  the  original  cost  of  each  grade 
sold.  The  amount  is  placed  in  the  line  pro- 
vided   for    these    amounts    under    the    proper 

heading.  ,  ,    ,        ^ 

We  will  now  take  the  general  ledger  from 
which  the  balance  of  our  information  is  ob- 
tained. The  item  "Salaries  and  Wages"  in  the 
ledger  has  been  distributed  in  the  form  "Dis- 
tribution of  Salaries  and  Wages"  as  shown 
in  the  last  chapter,  and  the  various  totals  of 
that  form  are  to  be  included  in  each  account 
before  prorating.  The  first  item  to  prorate' 
then  will  be  the  total  of  the  amounts  charged 
in  the  account  "Officials"  and  will  include  the 
expenses  incurred  by  the  officials,  plus  the 
compensation  allowed  them  as  per  the  total  of 
the  Column  One  in  the  "Distribution  of  Sal- 
aries and  Wages."  The  total  thus  secured  is 
placed  in  the  column  headed  "Total"  and  each 
kind  and  grade  of  coal  will  be  charged  with 
the   percentage  pro   rata   of   this   total   expense 


as  per  the  percent  figure  shown  at  the  head 
of  each  column. 

For  example,  we  will, suppose  the  total  ex- 
pense for  "Officials"  for  the  month,  including 
the  salaries  and  traveling  expenses,  to  be 
$640.00.  We  will  say  the  sales  of  anthracite 
egg  were  four  per  cent  of  the  total  sales  and 
that  the  sales  of  Pocahontas  were  twenty-six 
per  cent  of  the  total  sales.  The  charge  to 
anthracite  egg  would  then  be  four  per  cent  of 
$640.00,  or  $25.60,  and  the  charge  to  Poca- 
hontas would  be  twenty-six  per  cent  or  $154.40. 
Each  grade  of  coal  will  bear  its  percentage 
proportion  of  the  expense  until  the  entire  100 
per  cent  has  been  distributed. 

The  same  method  would  be  observed  in  dis- 
tributing the  salaries  of  the  employes  in  the 
office  as  defined  in  Chapter  Two. 

Item  three,  in  this  plan  of  distribution,  will 
prorate    the    selling    expense    including    the 
traveling  and  incidental  expenses  of  the  sales- 
men, the  commissions  and  salaries  paid  them 
and  any  bonuses  earned  by  them.    The  ledger 
should  detail  the  traveling  and  incidental  ex- 
penses.    The  amount  of  the  compensation  is 
obtained  from  the  total  No.  3  of  the  "Distribu- 
tion   of    Salaries   and   Wages."     Items    for   the 
accounts — 4  discount  and  interest;   5  rent;  6 
lighting;   7   telephone;   8  advertising — are   ob- 
tained  from   the   ledger   and   are   prorated   to 
each  grade  of  coal  at  the  per  cent  indicated  at 
the  head  of  the  column  for  that  grade.    In  pre- 
paring Account   9 — insurance   for  prorating — 
care  should  be  used  that  only  the  amount  of 
insurance    expired   for   the    month    should   be 
used.     That  is,  the  total  charge  for  insurance 
for  any  one  month  should  be  only  one-twelfth 
of  the  annual  premium.     In  case  the  firm  has 
liability  insurance,  the  expense   for  that  also 
can  be  prorated  with  this  item. 

The  amount  to  prorate  for  Account  10— 
taxes — should  be  handled  in  a  similar  manner 
as  insurance.  This  account  should  bear  taxes 
of  every  description,  personal  and  real  prop- 
erty, water,  wheel  and  special  assessments  such 
as  those  for  street  improvements  and  the  like. 
Only  the  amount  accruing  for  the  month 
should  be  prorated. 

The  amount  charged  to  Account  11— Depre- 
ciation— is  based  on  the  annual  appraisal  and 
therefore    the   amount   of   depreciation   to   be 
prorated   should   be   only   one-twelfth   of   the 
total  amount  charged   to  this   account.     If  a 
still  more  detailed  analysis  of  this  account  is 
desired,    it   may   be    distributed    in    the    same 
manner'  as   were   the   salaries   and   wages ;    that 
is,  the  amounts  of  depreciation  on  the  build- 
ings, pockets,  bins,  machine  equipment,  wagons 
and  horses  can  be   segregated.     The  expense 
for    buildings,    bins    and    machine    equipment 
should  be  prorated  over  the  whole  work  and 
that   for   wagons,   horses,   autos   and   delivery 
items  should  be  charged  to  "Teaming  Expense" 
before  prorating.    The  depreciation  expense  for 
pockets  can  also  be  handled  in  the  same  way. 

Accounts — 12  postage;  13  stationery;  and  14 
incidentals — are  taken  from  the  ledger  and 
prorated  over  the  whole  work  according  to 
the  percentage  indicated  at  the  head  of  the 
column. 

Account  15,  covering  yard  foremen  and  yard 


M 


THE  BLACK  DIAMOND'S  PRIMER 


labor,  as  shown  on  the  "Distribution  of  Sal- 
aries and  Wages"  form,  on  the  line  "Pay  Roll 
4."  will  bear  some  explanation.    The  salary  of 
the  foreman  is  a  burden  upon  the  whole  work 
and    should    therefore    be    prorated    over    the 
whole.    The  yard  laborer,  on  the  other  hand, 
may  be  engaged  in  a  specific  kind  of  work  and 
a  direct  charge  on  that  piece  of  work  may  be 
obtained.    For  example,  the  yard  laborer  may 
DC  engaged  for,  say,  two  hours  daily  on  clean- 
ing up  the  yard  and  on  all-around  work.     In 
that  case,  the  charge  is  to  "Account  15,  Yard 
Labor,"   and   is   prorated   over   all   the   work. 
Another  portion  of  his  time  he  spends  in  un- 
loading cars,  a  little  while  later  he  is  employed 
around  the   stable  or  the  pocket.     The   time 
sheet  should  record  how  much  of  his  time  is 
spent    on    each    duty    and    the    compensation 
spread   over   the  accounts   15,   16,   17  and   18 
accordingly.     By  this  method  the  Account  15 
has  in  it  only  the  charges  which  should  be  pro- 
rated over  the  whole  work,  and  the  total  of 
the  column  headed  15  in  the  "Distribution  of 
Salaries  and  Wages"  may  be  spread  over  the 
whole  work. 

Account  17:  Teaming  Expense  will  mcludc: 
The  totals  of  the  four  sub-divisions  of  this  ac- 
count A,  B,  C  and  D;  the  expenses  for  cartage 
or  the  hire  of  outside  teams ;  the  expenses  of  the 
auto  trucks,  and  the  total  of  the  Column  17  m 
the  "Distribution  of  Salaries  and  Wages."  If 
the  account  "Depreciation"  is  distributed,  Ac- 
count 17  will  bear  the  proportion  charged  for 
depreciation  of  wagons,  harness  and  horses  also. 
The  grand  total  of  all  these  items  will  be  pro- 
rated over  all  the  work. 

In  arriving  at  the  amount  of  expense  in  hand- 
ling coal  through  the  pockets,  there  are  two  things 


to  be  considered.  One  is  the  expense  of  puttmg 
the  coal  in  the  bin  and  the  other  the  expense  of 
getting  it  out  again  for  delivery  to  the  consumer. 
The  cost  of  putting  it  in  the  bin  and  caring  for 
it  in  the  bin,  will  be  handled  through  the  pur- 
chase record  in  the  same  manner  as  the  coal 
which  is  not  handled  through  the  pocket,  so  that 
the  total  cost  of  the  coal  may  be  figured  and  dis- 
played in  its  proper  section  of  the  "Distribution 
of  Expenses."  The  machinery  of  the  pocket  is 
used  mainly  to  so  dispose  of  the  coal  that  it  may 
readily  be  available  for  quick  loading. 

In  other  words,  the  machinery  is  used  to  prop- 
erly store  the  coal ;  therefore  the  expenses  of  the 
pocket  should  go  into  the  total  cost,  taking  the 
place  of  much  labor  that  would  be  necessary  if 
no  pocket  were  used. 

In  addition  to  these  charges  is  the  charge  for 
labor  involved  in  loading  the  coal  for  delivery 
into  the  wagons.  It  is  only  these  latter  charges 
that  are  to  be  distributed  in  the  form  "Distribu- 
tion of  Expenses"  in  the  line  "Pocket  Labor." 

In  closing  this  form,  all  of  the  columns  are  to 
be  added  and  the  sum  of  all  the  totals  should 
equal  the  total  shown  in  the  (irst  column  under 
the  heading  "Total."  The  total  amount  of  money 
spent  for  each  grade— shown  in  the  line  "Total 
Cost"— divided  by  the  number  of  tons  of  that 
grade  sold,  as  shown  at  the  head  of  the  column 
devoted  to  that  grade,  will  give  the  total  cost  per 
ton  for  that  grade.  The  total  amount  received 
from  sales  of  each  grade  divided  by  the  same 
number  of  tons  of  that  grade  will  give  the  price 
received  per  ton  for.  that  grade.  The  difference 
between  the  total  cost  and  the  total  receipts  from 
sales  will  show  the- net  profit  or  loss  for  each 
grade.  This  divided  by  the  number  of  tons  will 
give  the  net  profit  or  loss  per  ton. 


Mr.  Retail  Coal  Dealer  : 

Do  you  know  how  much  it  costs  you  to  handle  a  ton  of  coal? 

Do  you  know  whether  or  not  you  are  paying  more  than  the  market  price 

for  coal? 

Do  you  know  about  the  labor-saving,  money-making  methods  used  by  suc- 
cessful coal  dealers  in  other  localities? 

Would  you  like  to  know  these  things?  There  is  a  way,  and  the  cost  is 
almost  nothing.  Read  The  Black  Dlxmond  regularly,  act  on  the  suggestions 
and  information  you  will  find  in  its  columns,  and  the  money  invested  m  a  sub- 
scription will  be  returned  a  hundred  fold. 

Trial  Subscription  Offer 

The  Black  Diamond  will  be  mailed  to  any  address 
for  four  months  (16  consecutive  issues)  for  $1.00 

ADDRESS 

THE  BLACK  DIAMOND 


Manhattan  Bldg. 
Chicago 


Land  Title  Bldg. 
Philadelphia 


29  Broadway 
New  York 


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This  reserved  book  is  Not  Transferable,  and 
Must  Not  be  taken  from  the  room  in  which  it 
is  kept  without  special  permission:  it  Must  be 
returned  to  this  desk  before  the  borrower  leaves 
the  room.  The  prescribed  penalties  will  be  strictly 
enforced  whenever  these  regulations  are  infringedL 


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